A common question asked by entrepreneurs looking to branch out into the cannabis industry is, “How much does it cost to open a dispensary?”. With the cannabis industry projected to top $24 billion in the U.S. this year, it’s perfectly understandable that more people are interested in it. However, while opening a dispensary may be similar to opening a retail store in other industries, specific laws and financial costs make it quite expensive.
In short, the cost of opening a dispensary—based on key expenditures like licensing, staffing, rent fees, and marketing—could be anywhere from $150,000 to $2 million. However, this budget may vary depending on what state you’re in and what capital requirements apply to your dispensary there.
How much does it cost to open a dispensary?
Costs to open a dispensary will vary depending on your location, local real estate value, and state regulation. However, here is a list of the high-level costs, before we break them down further.
What costs should I consider when opening a dispensary?
- Licensing fees
- Capital requirements
- Realtor leasing
- Marketing (including website design and development)
- Professional fees
- Security and surveillance systems
- Business equipment (such as computers, POS devices, refrigerators, and shelving)
- Dispensary software (including POS systems, seed-to-sale software, inventory management, and workforce management software)
The first thing to consider when you wonder, “How much does it cost to open a dispensary?” are the licensing fees. To acquire a dispensary license, you’ll need to undergo background checks and pay licensing fees which can cost up to $5,000, depending on which state you’re applying in and whether you qualify for its social equity program or not. This license is renewed annually. Both the licensing process and the costs vary from state to state.
Some states require cannabis businesses to prove they have a certain level of both liquid and non-liquid assets before they can acquire a license. These are known as capital requirements and can range from $150,000 to $300,000. Before you go about the process of getting licensed, check your state’s regulations to see if these requirements apply to you.
Most cities require you to submit an application with the owner’s written consent to use a property for selling cannabis. In some cities, specific professions have to sign off on your application, such as an industrial hygienist. Additionally, there are strict rules about how close a dispensary can be to schools, playgrounds, and other similar areas. These factors make finding suitable retail spaces not just difficult but also expensive.
Annual real estate costs for a dispensary can cost up to $100,000. You’d also have to consider significant renovation costs to meet regulations, fit your brand identity, and ease functionality. Some legal firms offer to write and submit your applications for you. This can cost between $15,000 and $35,000, depending on the requirements for approval and other factors like the state of the building.
For any business to succeed, it needs a dedicated and well-trained staff. You’ll need store managers, budtenders, supervisors, and marketing staff to get your dispensary going. Based on industry-standard rates, you can expect the payroll costs to total almost $250,000 annually. You also have to consider further costs for continuous employee training to ensure your customers are receiving the best possible services.
Marketing and advertising are crucial parts of running a dispensary. A good marketing plan should include both online (website design and social media management) and offline (print ads, one-on-one marketing) components. It’s essential to combine the two, especially since business has undergone a digital transformation with customers increasingly making purchases online. This can set you back $15,000 in some markets, but up to $75,000 in others. For a very busy business, you may need to take on the additional cost of hiring a social media manager.
Although several states have legalized cannabis, its possession, distribution, and sale remain illegal under federal law. This legal ambiguity has made access to the banking system quite tricky for cannabis businesses, as banks working with U.S. cannabis firms run the risk of coming under the scrutiny of federal enforcement. Many banks refuse to take this risk, while others charge high holding fees of up to $2,000 for cannabis businesses. However, the recently passed SAFE Banking Act seeks to remove this obstacle by prohibiting banking system regulators from penalizing banks or credit unions that do business with legitimate cannabis-related firms.
You’ll need the services of certain professionals to get your dispensary up and running. If you use a professional to prepare your license application, that could cost you an extra $10,000 in consulting fees. You’d probably need to have an attorney on retainer as well, given the vulnerability of the cannabis industry. Add insurance policy costs to that, and you could be spending up to $50,000 on professional fees outside your usual payroll.
Security and surveillance systems
Robust security and surveillance systems are a must for any dispensary. They provide a safe environment for both your employees and customers and they also protect your product from theft. A good security system should include surveillance cameras, a main vault for flower storage, and a strong safe for cash. This can cost you upwards of $300,000 simply for installation costs, with separate costs for surveillance footage monitoring.
Your dispensary will need equipment such as computers, POS devices, display menus, shelving, and refrigerators to run efficiently. The electronics may cost you up to $25,000, while furniture, shelving, and other fixtures could run up a bill of about $30,000.
With so many costs incurred in startup and maintenance, it’s no wonder that many entrepreneurs have turned to cannabis software solutions to increase efficiency and cut management costs. Seed-to-sale software allows you to track every stage of the cannabis supply chain, including inventory control, sales, business intelligence reporting, compliance monitoring and government data submissions. POS systems help businesses streamline transactions. Workforce management software manages employee scheduling and attendance. Establishing these systems may set you back at least $1000 for hardware and up to $1000 monthly software fees.
How can I save money when opening a dispensary?
With the information above highlighting how much it costs to open a dispensary, you’re probably wondering, “Can owning a dispensary be profitable?”
This is a reasonable concern in the face of such hefty startup and maintenance costs. How then can an entrepreneur break even? In the following section, we shall delve into a few ways you can save money when opening a dispensary.
Saving on licensing and capital requirements
Because licensing fees and capital requirements depend on what state you’re in, you can actually cut costs by setting up shop in states with lower licensing fees and capital requirements. For example, the license application fee in California is $5000 compared to the $6000 tab you’d pick up in Michigan— that’s a large amount of money saved. You can look up the cheapest states for opening a dispensary here.
However, you have to ensure you don’t sacrifice higher sale prices for lower license fees. Oregon, for example, has a license fee of $250 – the lowest in the U.S. However, it also has one of the lowest cannabis prices, with one gram selling at $6.65. So, it would be more profitable to pay 200% more on a license in Michigan and reap higher profits with an average sales price of $9.74/gram.
Cutting real estate costs
When it comes to cutting real estate costs, the most cost-effective dispensary building option tends to be a vacant space in a strip mall. Compared to renovating standalone buildings or starting a new build, this saves you money as the mechanicals you need are already in place, and the space can easily be altered to suit your dispensary’s needs. Also, with a strip mall, the need for external renovations is avoided, saving even more money.
Save money on hiring
Another major expense you can cut costs on is staffing. You can save money on hiring by carefully vetting the staff you take on for your business. Hiring talented and experienced staff not only ensures maximum productivity and profits for your dispensary, it also saves the time and effort you would spend on training inexperienced staff to better handle their duties. Also, with a good staff, you can have higher employee retention rates and save significantly on onboarding costs for new hires.
Social media engagement as marketing
A large proportion of consumers now make their purchases online. With the integration of social media into commercial online platforms, social media management has become an integral part of marketing for most businesses. You can save thousands of advertising dollars by actively engaging with clients and potential customers on your social media page. It may be a time-consuming endeavor, but the rewards and savings are well worth it.
Do it yourself
The same do-it-yourself approach for marketing could be applied to cutting costs for professional fees. Instead of hiring a professional to tackle your license application, do it yourself. Of course, certain costs like an attorney’s retainer fee are a necessary expenditure that you cannot avoid. However, if you can do something yourself with no risk to the business to save costs, do it.
Reduce security risks
When it comes to security systems for your business, it can be risky to try and cut corners. Instead, you can remove the need for certain security measures. There’s no need for a safe if you only accept electronic payments. Some companies charge extra fees to manage your surveillance footage—you could cut costs by doing this yourself.
Leveraging technology to cut costs
While several cannabis business owners are leveraging technology to cut costs, it can be easy to get swept away in the tide of different digital solutions available on the market. Software like POS systems and payroll products serve different important purposes, and getting a separate type of software for each of the many roles in your business may break the bank. A smart way around this would be purchasing an all-in-one software solution that covers multiple roles for one price. For example, with this software offering free workforce scheduling for a year with Cova POS, you could save on the costs of purchasing a workforce management software and POS system separately.
How long will it take to open a dispensary?
Opening a dispensary isn’t something you can rush into. The licensing process and startup arrangements can take several months, if not years. Once you’ve paid the initial licensing fee and applied for approval at the local level, you may have to wait six months to a year. After this, you’ll have to apply for a state dispensary license. During the waiting period, you’ll undergo background checks and you won’t be able to make any sales until you’re licensed.
While wait periods may vary across states, there’s a general understanding that the process of opening a dispensary will take you at least one year, especially taking into consideration how much it costs to open one.
What else do I need to know?
For a lot of entrepreneurs entering the cannabis industry, a question at the forefront of their minds is probably, “How do I start a successful dispensary?”
Although having the necessary funds does play a major role in the success of your dispensary, there are a few other non-monetary factors to take into consideration. Two of those factors are charisma and knowledgeability.
Unlike several other businesses which have been legitimate for several decades, the cannabis industry is relatively young. As a result, there is little knowledge about the product and a lot of apprehension. A charming businessman armed with relevant facts on cannabis is more likely to convince a first-time buyer to try a cannabis product. It would also be far easier to secure the trust of a dubious landlord unsure of letting his property out to a cannabis business.
Combine a well-informed charm with knowledgeable answers to the question, “How much does it cost to open a dispensary?” and you’ll have a winning formula in this budding fast-growing industry.