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How to Open a Cannabis Dispensary

Written by:

Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.

Edited by:

David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.

How to Open a Cannabis Dispensary

Fast Facts

Investment range

$116,300 - $243,300

Revenue potential

$312,000 - $936,000 p.a.

Time to build

3-6 months

Profit potential

$78,000 - $234,000 p.a

Industry trend

Growing

Commitment

Full-time

38 states and the District of Columbia have made medical marijuana legal, and 22 have legalized marijuana for recreational use. That’s opened up a whole new cannabis industry that’s already worth more than $20 billion and growing. If you’re lucky enough to live in a state where cannabis dispensaries are allowed, you could start your own dispensary and get in on the action. 

But first, you’ll need to understand the business. Fortunately, this step-by-step guide details all you need to know to fire up a successful cannabis dispensary.

Step 1: Decide if the Business Is Right for You

Pros and cons

Pros

  • Fast growing market
  • Good profit potential
  • Meet many like-minded people

Cons

  • Highly regulated industry 
  • Licenses are expensive

Cannabis dispensary industry trends

Industry size and growth

Cannabis Industry size and growth

Trends and challenges

Cannabis Industry Trends and Challenges

Trends

  • Cannabis concentrates and cannabis beverages are growing in popularity.
  • The number of female cannabis buyers is growing rapidly. 

Challenges

  • The regulatory landscape is still evolving, forcing cannabis dispensary owners to continuously adapt.
  • Many banks still refuse to work with cannabis related businesses, creating obstacles to financing for cannabis dispensaries.

How much does it cost to start a cannabis dispensary business?

Startup costs for a cannabis dispensary range from $120,000 to $250,000. Costs in include licensing, the space rental, and inventory.

You’ll need a handful of items to successfully launch your cannabis dispensary business, including: 

  • Shelving and cases
  • Checkout counter
  • Coolers for cannabis beverages
  • POS system
Start-up CostsBallpark RangeAverage
Setting up a business name and corporation$100 - $500$300
Business licenses and permits$100 - $300$200
Insurance$100-$500$300
Website$500 - $1,000$750
Cannabis licenses and permits$10,000 - $30,000$20,000
Space rental and preparation$5,000 - $10,000$7,500
Inventory$100,000 - $200,000$150,000
Sales and marketing budget$500 - $1,000$750
Total$116,300 - $243,300$179,800

How much can you earn from a cannabis dispensary business?

Cannabis Dispensary earning forecast

You can generally charge about $300 per ounce of cannabis, or $75 for a quarter ounce. Prices for things like edibles and beverages will vary. These calculations will assume that your average customer will spend $100. Your profit margin should be about 25%.

In your first year or two, you could have 10 customers a day, 6 days a week, bringing in $312,000 in revenue. This would mean $78,000 in profit, assuming that 25% margin. 

As you gain traction, you might have 30 customers a day. With annual revenue of $936,000, you’d make a tidy profit of $234,000.

What barriers to entry are there?

There are a few barriers to entry for a cannabis dispensary. Your biggest challenges will be:

  • Funding the startup costs
  • Living in a state where cannabis is legal
  • Finding a wholesale supplier of cannabis and cannabis products

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Step 2: Hone Your Idea

develop a business idea

Now that you know what’s involved in starting a cannabis dispensary, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Market research could give you the upper hand even if you’ve got the perfect product. Conducting robust market research is crucial, as it will help you better understand your customers, your competitors, and the broader business landscape.

Analyze your competitors 

Research cannabis dispensaries in your area and online to examine their products, price points, and customer reviews.

  • Make a list of cannabis dispensary that offer similar products. 
  • Review your competitors’ products – their features, pricing, and quality – and marketing strategies.
  • Check out their online reviews and ratings on Google, Yelp, and Facebook to get an idea of what their customers like and dislike.
  • Identify your competitors’ strengths and weaknesses. 

This should identify areas where you can strengthen your business and gain a competitive edge to make better business decisions.

Why? Identify an opportunity

You’re looking for a market gap to fill. For instance, maybe the local market is missing a recreational cannabis dispensary that sells concentrated cannabis, or a marijuana business that sells cannabis beverages and edibles.

You might consider targeting a niche, such as cannabis by the ounce.

What? Determine your products

Your best bet is to offer a wide variety of cannabis products, including:

  • Flower/bud
  • Pre-rolled joints
  • Edibles (gummies, chocolates, cookies, brownies, tinctures)
  • Concentrates
  • Vape pens and cartridges
  • Topicals (creams and balmas)
  • Tinctures
  • Capsules
  • Seeds or clones (for cultivation)
  • Accessories (pipes, bongs, rolling papers and trays)

How much should you charge for cannabis products?

Your prices for various products should depend on market prices in your area, but also on your costs to acquire the products.

Once you know your costs, use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market, whether you have a medical marijuana dispensary or a recreational cannabis dispensary, could be people of any age, so you should market on TikTok, Instagram, and Facebook.

Where? Choose a cannabis dispensary location

You’ll need to rent out a space for your dispensary. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices. Ensure the location adheres to local and state regulations concerning the distance from schools, parks, and other specified establishments. Moreover, gauge the local community’s attitude towards cannabis; supportive neighborhoods can be crucial for business success.

Cannabis Dispensary idea rating

Step 3: Brainstorm a Cannabis Dispensary Name

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better 
  • Name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “cannabis” or “marijuana”, boosts SEO
  • Name should allow for expansion, for ex: “Cannaverse” over “Herb Healers”
  • A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead and reserve your business name with your state, start the trademark registration process, and complete your domain registration and social media account creation. 

Your business name is one of the key differentiators that sets your business apart. Once you pick a name, reserve it and start with the branding, it’s hard to switch to a new name. So be sure to carefully consider your choice before moving forward. 

Step 4: Create a Cannabis Dispensary Business Plan

Here are the key components of a business plan:

what to include in a business plan
  • Executive Summary: Provide a concise overview of your cannabis dispensary business, including its location, key offerings, and target customer base.
  • Business Overview: Describe the nature of your cannabis dispensary, its mission, and the specific products you plan to offer, such as flower, edibles, or concentrates.
  • Product and Services: Detail the range of cannabis products and related services available in your dispensary, including strains, brands, and any additional offerings like consultations or delivery services.
  • Market Analysis: Analyze the local and regional cannabis market, identifying consumer preferences, regulatory considerations, and potential growth opportunities.
  • Competitive Analysis: Identify existing competitors in the cannabis industry within your area, highlighting their strengths, weaknesses, and what differentiates your dispensary.
  • Sales and Marketing: Outline your strategies for attracting customers, including advertising, promotions, and community engagement efforts.
  • Management Team: Introduce the key members of your team responsible for managing and operating the cannabis dispensary, emphasizing their expertise in the industry.
  • Operations Plan: Describe the day-to-day operations of the dispensary, covering aspects like inventory management, compliance with regulations, security measures, and employee training.
  • Financial Plan: Present financial projections, including startup costs, revenue forecasts, operating expenses, and profit margins for your cannabis dispensary.
  • Appendix: Include any additional materials that support your cannabis dispensary business plan, such as licensing documents, partnerships, or market research data.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to cannabis dispensaries. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your cannabis dispensary will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

types of business structures
  • Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
  • General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts. Here’s how to form an LLC.
  • C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation. Read how to start a corporation here.
  • S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have. 

Form Your LLC

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Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

types of business funding
  • Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Venture capital: Venture capital investors take an ownership stake in exchange for funds, so keep in mind that you’d be sacrificing some control over your business. This is generally only available for businesses with high growth potential.
  • Angel investors: Reach out to your entire network in search of people interested in investing in early-stage startups in exchange for a stake. Established angel investors are always looking for good opportunities. 
  • Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
  • Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
  • Personal: Self-fund your business via your savings or the sale of property or other assets.

You may have to get creative to get funding for a cannabis dispensary. Some online lenders offer cannabis dispensary loans, or you can get an inventory loan to finance the purchase of your products. They are usually short term loans and may come with a high interest rate.

Step 8: Apply for Cannabis Dispensary Licenses and Permits

Business Licenses and Permits

Starting a cannabis dispensary business requires obtaining a number of licenses and permits from local, state, and federal governments.

You’ll need to check with your state for specific cannabis dispensary license requirements.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your cannabis dispensary business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

types of business insurance
  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

Launching a Business

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.  

You may want to use industry-specific software, such as flowhub, or Cova, to manage your customers, orders, inventory, and payments. 

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Create a website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Your customers are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. 

Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Buy Now” or “Order”. This can sharply increase purchases.

Marketing

Here are some powerful marketing strategies for your future business:

  • Educational Workshops: Host workshops or seminars on the benefits and uses of cannabis, addressing common misconceptions and providing valuable information to both newcomers and experienced users.
  • Loyalty Programs: Implement a loyalty program that rewards repeat customers with discounts, free products, or exclusive access to new strains, fostering customer retention and building a community around your dispensary.
  • Strategic Partnerships: Forge partnerships with local businesses, such as wellness centers, yoga studios, or health food stores, to cross-promote products and services, expanding your reach within the community.
  • Innovative Packaging: Invest in visually appealing and eco-friendly packaging for your cannabis products, as this not only enhances the overall customer experience but also serves as a powerful marketing tool when shared on social media.
  • Community Events Sponsorship: Sponsor or actively participate in local events, festivals, or community gatherings to increase brand visibility and connect with potential customers in a more relaxed and enjoyable setting.
  • Localized SEO Optimization: Optimize your online presence with localized SEO strategies to ensure your dispensary appears in local search results, making it easier for nearby customers to find and visit your store.
  • In-Store Experience: Create a welcoming and comfortable in-store atmosphere, incorporating aesthetic design, knowledgeable staff, and interactive displays to enhance the overall customer experience and encourage repeat visits.
  • Social Media Contests: Run engaging contests on social media platforms, encouraging user-generated content and increasing your online presence while rewarding participants with discounts or free products.
  • Health and Wellness Collaborations: Collaborate with healthcare professionals to highlight the potential therapeutic benefits of cannabis, positioning your dispensary as a trusted source for both recreational and medicinal use.
  • Customer Feedback Integration: Actively seek and incorporate customer feedback to improve your products and services continually, demonstrating your commitment to meeting the needs and preferences of your customer base.

Focus on USPs

unique selling proposition

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your cannabis dispensary meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your cannabis dispensary business could be: 

  • Discover an exquisite selection of hand-picked, premium-grade cannabis strains
  • Experience a carefully crafted range of high-quality cannabis products designed to enhance your well-being
  • Our knowledgeable staff ensures your journey through cannabis is tailored to your unique needs and preferences

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a cannabis dispensary business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in cannabis dispensaries for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in cannabis dispensaries. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Build Your Team

Building a Team for a New Business

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a cannabis dispensary business include:

  • Dispensary Clerks – make sales, customer service
  • Marketing Lead – create and implement marketing strategies
  • General Manager – scheduling, inventory management, accounting

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Run a a Cannabis Dispensary – Start Making Money!

Running a Business

Cannabis is a fast growing industry in the United States, so now could be a great time to start a cannabis dispensary. You just have to meet the licensing requirements and stock up on inventory, and you can make a healthy profit. If you’re successful, you could even expand to new locations in your state and build a cannabis empire.

Now that you understand the business, you’re ready to light up your town with your new cannabis dispensary!

Cannabis Dispensary Business FAQs

Is a cannabis dispensary profitable?

Yes, a well-run and compliant cannabis dispensary can be a very profitable business. The profitability depends on factors such as location, competition, product selection, pricing, marketing strategies, and operational efficiency. The market is growing rapidly, so a cannabis dispensary has huge potential.

What happens during a typical day at a cannabis dispensary?

A typical day at a cannabis dispensary involves activities such as opening procedures, inventory management, customer service, sales transactions, compliance with regulations, product education, staff training, ongoing marketing and promotions, and closing procedures.

What is the growth potential of a cannabis dispensary?

The growth potential of a cannabis dispensary is significant due to increasing legalization, shifting perceptions, product diversification, innovation and research, and ancillary opportunities in the cannabis industry.

What type of business is a cannabis dispensary?

A cannabis dispensary is a retail business that specializes in the sale of cannabis and cannabis-related products to eligible consumers. It operates within the legal framework and regulations set by its jurisdiction, requiring licenses and compliance with specific rules related to product sourcing, testing, packaging, labeling, security, and customer verification.

Comments

  1. Mease Susan says:

    High-quality strains and a wide variety of products. Knowledgeable and friendly staff.

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How to Open a Cannabis Dispensary