First things first, it costs a lot to open a cannabis dispensary. Just to get things going requires significant capital resources and, in some instances, political and business connections as well. The actual cost varies greatly. Several factors are at play, such as the state you’re operating in, the size of your store, and whether you decide to vertically integrate your supply. Either way, expect to need between $200K and up to $5M – yes, you read that right! – to open a dispensary.
Opening a cannabis retail shop is more complicated than other businesses, given its real estate limitations, security requirements, costly licenses, and beyond. The reality of these challenges, their effects, and how to deal with them are explained below. Read on to learn more about how much it costs to open a marijuana dispensary and why the cost is what it is.
Table of Contents
- Real Estate Cost Of Opening A Dispensary
- Asset Requirements: How Much Do You Need To Open A Dispensary?
- How Much Is A Dispensary License?
- Financing And Handling Cash
- Security and Insurance Requirements
- Employing Budtenders And Managers
- Dispensary Point Of Sale and Integrations
- Marketing Your Cannabis Retail Shop
- How Much Does It Cost To Acquire THC Products?
- Final Things to Consider Regarding Dispensary Startup Costs
Real Estate And Construction Cost To Open A Dispensary
Finding proper real estate can be one of the toughest hurdles when it comes to opening up a dispensary. There are many rules to consider when looking for a property. Location limitations, special requirements, taxation laws, and hostile municipalities complicate the search.
Limited Zones
According to New York’s MRTA laws, for example, towns can opt out of allowing recreational dispensaries. And this is a common occurrence. Even if you do find a town that allows you to open a store, there are several types of buildings that your dispensary can’t be near. Both state and local regulations lay out these laws.
California’s state code stipulates that a marijuana dispensary:
… shall not be located within a 600-foot radius of a school providing instruction in kindergarten or any grades 1 through 12, daycare center, or youth center that is in existence at the time the license is issued, unless the department or a local jurisdiction specifies a different radius.
Then if you add on a local municipality code, like Malibu, for example, you get even tighter restrictions:
The interior walls of the dispensary and/or retailer storefront tenant space shall not be located within one thousand feet, using a straight line radius, of the property lines of a property containing a church, temple, or other places used primarily for religious worship, or a playground, public park, public library, licensed child day care facility, nursery school or school that is located within or outside the city.
This limits the availability of the actual amount of places in a city where you can legally open a dispensary. Such a lack of inventory drives up demand and pricing.
Viable Space Needed
Aside from cannabis microbusinesses, dispensaries can’t really be like pop-up shops. They require built-in security measures that come with many specific architectural provisions required by law. This means that your dispensary will likely have to be outfitted with a large vault, security room, manned-gate, and a check-in area. It also must be large enough to meet the demands of your inventory, showroom, purchase flow, style, etc.
Higher Square Footage Cost
Because of the stigma surrounding cannabis stores, there are some complications with federally insured banks. This has limited the real estate inventory available for dispensary rental properties. Hence, the average square footage price for retail cannabis can cost up to double what most other businesses would pay.
You can expect to pay between $100-400/square foot. And with dispensary sizes averaging about 4,000 square feet, that means between several hundred thousand and up to a million dollars a year in rent for a typical property.
Types Of Cannabis Dispensary Structures To Consider
There are four types of structures to consider when building a dispensary:
- Strip mall conversion
- Free-standing conversion
- Existing building renovation
- New construction
All four have pros and cons as far as what they offer. Strip mall locations are cheaper to convert but require smell-proofing for neighbors. Building from scratch is expensive but offers ultimate customizability and the most realistic timelines. Historic conversions are risky because of possible unforeseen challenges.
Grow America Dispensary Builders puts the estimated average cost of building each type as follows:
- Strip mall conversion: $500,000 – $850,000
- Free-standing conversion – $350,000 – $1,000,000
- Existing building renovation – $600,000 and up with $100,000 contingency
- New construction – $900,000 to $3,500,000
Asset Requirements To Open Dispensary
Many states require a certain minimum capital in order to even apply for a dispensary license. The bad news is that these requirements are typically extremely steep. The good news is that in most states, they only apply to medical dispensaries and not recreational applicants. An exception is Arizona, where $500K in liquid assets are needed to apply for a recreational dispensary license.
Here are some state capitalization requirements to think about:
- Arkansas – $200,000 overall with $100,000 in liquid assets
- Arizona – $500,000 in liquid assets
- Florida – $5,000,000 performance bond submission
- Nevada – $250,000 in liquid assets
- Ohio – $250,000 in liquid assets
- Pennsylvania – $2,000,000 with $500,000 in liquid assets
Dispensary License Cost
Licensing is a complicated and painstaking matter in the cannabis world. First, you generally need to pay an application fee to open a dispensary of any size, and that’s before you pay the initial and yearly licensing fees to allow you to operate. If you own the grow operation AND the dispensary (something called “vertical integration”) you need to have an entirely separate license from your operating one (While most states allow vertical consolidation, a few require it, and some forbid it).
Between application fees (some of which are non-refundable), license fees, and renewal fees, certification costs can add up quickly. These fees also vary greatly depending on the state.
Capital And Banking
The current reality of banking in the marijuana industry is that many big legacy banks are unwilling to work with growers and dispensary owners. You can’t exactly sit down with Chase Bank and explain to them you plan to sell the best buds and live resin gummies on the market.
It’s not that it’s illegal to finance cannabis businesses – actually, it’s decidedly not – but it’s instead that banks are averse to all high-risk industries, such as pornography, guns, and gambling. Because of this, 90% of the cannabis industry’s lending capital comes from private sources. Often these sources charge extremely high-interest rates or demand significant equity in order to get involved. These mostly come in the form of venture capital, private equity groups, or friends and family.
Still, it’s not impossible to find local credit unions to help finance your operation. California has passed measures to allow banks to accept deposits from marijuana businesses, and Nevada plans to do the same. Just be prepared to pay monthly fees of around $5,000 to credit unions for keeping your business in financial compliance.
Cannabis Dispensary Security And Insurance
Not only will ample security be absolutely necessary to keep a dispensary safe, but it is also required by state and local laws. Different locales have specific statutes about the necessary steps your dispensary must take to ensure that it is tightly secured and regulated. This includes architectural aspects such as vaults, one-way doors, and mantraps.
Upon entry, you will need a station to check in customers with ID verification, plus 24-hour surveillance with minimum pixel and storage requirements, certified guards, and more.
Take Nevada law, for example:
To prevent unauthorized access to cannabis at a cannabis establishment, the cannabis establishment must have:
One single secure entrance of the physical building;
No visible cannabis or cannabis products from outside the establishment.
Security equipment to deter and prevent unauthorized entrance into limited access areas
…Video cameras with a recording resolution of at least 1920 x 1080…at a rate of at least 15 frames per second which provide coverage of all entrances and exits of the building, any room or area that holds a vault and any point-of sale location, which record 24 hours per day
…at least one employee of the cannabis establishment or the employees of
any third party who provides security to the cannabis establishment has completed or will complete
within three months of being hired, … {with}:
…Training in theft prevention or a related subject…emergency response or a related subject in the appropriate use of force or a related subject that covers when the use of force is and is not necessary; in the use and administration of first aid, including cardiopulmonary resuscitation.. in the protection of a crime scene or a related subject…in the control of access to protected areas of a cannabis establishment or a related subject…
The installation costs for a dispensary vary greatly, usually between $10,000 and $300,000 depending on how big and elaborate your space is. The more divided your space is (with safes and separate rooms), the more cameras you will need.
Furthermore, armed security guards cost around $70 an hour. And keep in mind that many cloud-based security companies charge a monthly fee for operating, monitoring, and storing your camera footage data. Maintenance and off-site data storage for monitoring can be as much as $35 per camera.
Dispensary Insurance Coverage
Like any business, running a dispensary means buying insurance, including general liability, workers comp, and product liability. State laws differ as to what kind of insurance your cannabis retail company needs, but all states require at least some 1st and 3rd party coverage. Typically, only non-admitted insurance carriers will work with dispensaries, meaning they’re not regulated or backed by state insurance guidelines. Depending on the size of your shop, your policy amount, your location, and other factors, you can expect to pay between $1,000 and $5,000 a year for insurance.
Staffing Costs
Like any other business, dispensaries will require several different employee categories. Besides the security, which we discussed above, you will need well-trained and licensed budtenders who are ready to help customers with their individual needs, explain products, and upsell accessories and impulse purchases. In addition, you will need store managers who have experience working in dispensaries. Finally, depending on the size and scale of your operation, it’s best to hire a compliance manager to ensure that your business is operating legally within all of the state tracking and reporting regulations.
Average salary:
- Budtenders: $15-20/hr
- Store Manager: $20-$35/hr
- Compliance: $25-$38/hr
Dispensary POS, Tracking, And Compliance
Make sure to use a point of sale system that easily facilitates compliance with whichever seed-to-sale software your state requires. KORONA POS is fully integratable with multiple track-and-trace regulatory systems like Metrc and Biotrack.
Customer And Inventory Management
Just as important is having a POS that works seamlessly with your CRM and inventory management. Using a powerful POS like KORONA POS will be one of the most cost-effective and strategic moves you can make opening any retail business, and even more so with a dispensary. Too often, we work with dispensaries that are consistently struggling to keep their most popular products stocked. Use a retail inventory management system to keep your products at optimal stock levels and always have what your customers want.
Merchandising strategically and implementing effective loyalty programs is a must as well. Shoppers love getting rewards and free items. Plus, remarketing to past shoppers through SMS messaging and email is a great way to encourage more frequent visits.
Cash Security
Dispensaries also require more advanced cash security. KORONA POS boasts the best cash control assurance in the industry. Since cannabis is almost exclusively a cash business, many budtenders take advantage of discounts and deals to pad their tip jar or even remove cash from the drawer. Guarantee that all of your sales are accounted for with our built-in security measures, including a cash journal and customizable employee permissions/access.
Cannabis Dispensary Marketing
Cannabis is a remarkably competitive market. You’ll need to get the word out that you have quality gummies, pre-rolls, flowers, and more for sale. However, you won’t necessarily be able to use all of the marketing channels that are typically used by retail businesses. Optimizing for search engines, starting informative blogs, creating brand identity, establishing partnerships with celebrities, and running campaigns on social media are all modern techniques that dispensaries use to market themselves digitally.
There are also cannabis-specific apps and websites that you can make use of to promote your storefront, such as Weedmaps. Overall, shoot for spending at least 5% of your yearly revenue on marketing your store. For a store doing $500,000 in sales per year, that would be about $2,000 a month for marketing.
Acquiring Cannabis Inventory
Planning and getting everything in order is great, but you still need the actual products to stock your store! Merchandising takes craft and strategy based on market research, established relationships with cultivators, and the style and vibe of your dispensary. Cannabis prices vary significantly depending on growing techniques, genetics, location, supply, and demand.
As of March 2022, the average cost of a pound of flower was about $1200. Prices have actually dropped for certain types of cannabis in certain places, while others have stayed stable. Unsurprisingly, dispensary retail prices also vary depending on local economic conditions. Hence, doing research about the relationship between these factors can help determine the best location to pursue a retail space.
Vertically-Integrated Supply
If you’re planning on growing your own product, then your overall cost of opening will be astronomically higher. Vertical integration certainly costs much more to implement and execute, and in some states, you legally can’t even do it at all. Vertical integration does bring the opportunity for higher profits but is a much more complicated process than simply running a retail operation.
Cost Of Opening A Dispensary: Other Factors To Think About
This industry is filled with extraordinary complication and nuance. It’s worth thinking about the following factors when inquiring into opening a dispensary of any kind.
Almost No Federal Tax Deductions
Unlike most businesses, you cannot claim expenses for federal tax deductions. This means that typical tax breaks that businesses get for rent, payroll, utilities, security, and more, are not applicable under your tax code because you’re technically selling a federally controlled substance.
You can, however, deduct your cost of goods sold. This means that whatever you pay to acquire the product that you put on your shelves can be deducted from your gross income before you pay your federal taxes.
Social Equity Cost Reduction
Social equity laws exist to allow for more opportunities for those “disproportionately affected by the war on drugs.” People of color were (and continually are) categorically overpoliced and over-incarcerated for marijuana-related charges. Therefore, many of the places that have legalized adult-use cannabis have included “social equity” laws and requirements in an attempt to rectify the glaring inequality within the cannabis world. Social equity candidacy also extends to female business owners, veterans, and individuals with previous marijuana convictions.
Some places with cannabis programs have regulations that significantly reduce the cost burden for applications and loans. Many states and municipalities, such as the state of Illinois and the city of Denver, have actually restricted any further new dispensary licenses to social equity candidates only. If you are a potential social equity candidate, this could be something that could make your entry into the industry much easier to achieve.
Different Dispensary Fees For Microbusinesses
Some states have added a provision to their cannabis laws for smaller operations known as microbusinesses. As of now, NJ, NY, CT, VT, VA, IL, and NM offer this option. They generally have requirements such as owners residing close by, operating a smaller size dispensary, and employing less total staff.
Microbusiness fees are also typically lower. In NJ, for example, the fees are, by law, 50% less than normal. If you are trying to enter the market and have limited capital or simply want to operate a tighter, leaner retail marijuana business, the microbusiness category could be a great option for you to free up startup capital for other business needs.
Get Your Dispensary Going With KORONA POS
No matter what size your retail cannabis business will be or what state you choose to operate in, you should start from the first day using a dependable, robust, compliance-ready point of sale system. Utilize our built-in inventory, sales, and employee analytics to get the most out of your data. Equip your store with the latest integrations to keep your customers informed about what you have to offer and easily reach out to them for promotions and discounts. Give us a call today to speak directly to a member of our team and get a quote for our modern, cloud-based dispensary POS system!
FAQs: The Cost of Opening a Dispensary
At this moment Oklahoma is the cheapest option for opening a dispensary. Their licensing application fee is only $2,500 and they don’t require capitalization minimums. In addition, the real estate, construction, and overhead costs are lower than any other legal states.
The cost of dispensary licenses varies depending on the state you want to open in, as well as whether you want a medical or recreational license. Expect to pay between a couple thousand and several hundred thousand dollars, with an average in the tens of thousands to obtain a license.
As far as ease of acquiring licensing and approval, Massachusetts currently has the most streamlined process. However, factoring in overall financial needs, Oklahoma requires the least amount of start up capital to open a dispensary. With other factors such as legality, license availability, taxes, and market forces, Oregon, Colorado, and Michigan are also top contenders.
In some ways, writing a business plan for a dispensary is very similar to any other retail business with intended goals, company structure, products offered, budget, and market research. On the other hand, there are some cannabis-related details that you will need to include in your outline, such as plans for finding “green” real estate, acquiring proper licensing, ensuring compliance and security, handling cash, and procuring loans from marijuana-friendly investors.
