How Much Does It Cost to Start a Dispensary?: Licensing to Operations

Statista states that opening a regulated dispensary in the US costs at least $775,000. However, this number will still vary depending on the size of the business and by state. 

Like every other business engaged in cannabis, opening a dispensary can be expensive and complicated. In addition to having that “capital,” you need to be able to allocate the money smartly to set up a fully operating dispensary.  

This guide explains the costs of opening a cannabis store, state licensing fees, and tips for budgeting effectively. 

How Much Does Starting a Weed Dispensary in the US Cost?

Unregulated cannabis stores cost around $100,000 or less, but building a legal dispensary can be very expensive, costing up to $2 million.

The startup cost to open a cannabis dispensary is divided among several factors: the location of the business, the size of the operation, product inventory, state fees, manpower, equipment, security systems, and marketing. There may also be hidden fees, such as utilities and banking fees.

Thorough market analysis and business planning are needed to determine the real cost of the cannabis business you’re planning to put up. 

Read the next section below to get the average figures for the factors contributing to your dispensary startup cost.  

Factors Affecting Dispensary Startup Costs

Some of the costs of starting a dispensary, such as staffing or renovations, will be under your control. You have full liberty on how much you want to shell out. However, some costs are tied to the state you plan to make into the business location. These will be licensing fees, compliance fees, etc. 

Get to know the nature of these various costing facets and their rough monthly minimum estimates:  

Licensing and Legal Fees: $5,000 

The licensing and legal fees for dispensaries vary by state. However, you need to budget at least $5,000 to cover these expenses. Licensing application fees are often non-refundable. Once you start operating, the annual renewal of dispensary licenses can climb up to $10,000.

Real Estate Costs: $12,500 

Location can make and break a dispensary because your visibility and market saturation lie here. Also, you can’t just rent or own any retail space because of the nature of the business. Because of the short supply of ideal locations for dispensaries, the annual budget for bare real estate can cost you $100,000 or more. Remodeling the space according to your business plan is priced initially at $50,000.

Banking Fees: $2,000 

Not all financial institutions, like banks, are eager to partner with cannabis businesses. To get around these restrictions, you must transact with credit unions and a few private banks that allow dispensaries to be clients. 

Unfortunately, dispensaries charge slightly higher banking fees because of the additional risks they face engaging with a cannabis business. Also, these organizations know your choices are limited. So, budget at least $2,000 per month for banking fees. 

Equipment and Inventory: $40,000

Equipment and inventory include installing a POS system, inventory of cannabis products, and other electronic equipment needed to run a business facility. A fully secured POS system costs about $25,000. 

Meanwhile, stocking high-quality flowers costs $1,500 per pound. If your standard inventory of flowers is 10 pounds per month, your inventory would be $15,000.

Security: $10,000

State laws require dispensaries to secure business parameters. Your local government might require specific security protocols, such as installing vaults, CCTVs, mantraps, standby security guards, etc. Depending on the mandate, these will cost between $10,000 and $300,000. 

Insurance: $400

Dispensary insurance covers general liability, workers’ compensation, product liability, and more. Insurance can cost up to $400 a month, depending on your coverage and policy amount. Some states require business insurance coverage, while others may not. 

Staffing and Training: $30,000

To run a successful dispensary, you need a dedicated staff composed of delivery drivers, inventory personnel, budtenders, supervisors, store managers, etc. If you’re paying them the standard rate of the cannabis industry, you need to pay them at least 30,000 a month in total. 

Marketing and Advertising: $2,100

The cannabis space is a highly competitive market. Running a dispensary without a marketing and advertising plan is like running a car without tires. Today aside from word-of-mouth, a cannabis retail store would also need a localized online presence, which can be achieved through a solid marketing and search engine optimization plan. 

Dedicating 5% of your annual revenue to marketing is the safest budgeting strategy. So, if your total annual revenue averages $500,000, allocate at least $2,100 a month. 

Guide to Dispensary Licensing Costs Across States

The licensing fees of medical and recreational retailers or dispensaries across states are generally divided into three categories: application fee, licensing fee, and annual license renewal. 

Licensing fees vary significantly among states. Additionally, some states consider their licensing fee the default initial annual renewal fee. This table breaks down dispensary licensing costs per state. 

Which Is the Cheapest State to Open a Dispensary?

Two states come to mind when it comes to the cheapest and easiest states to open a dispensary: Oregon and Colorado. 

There may be other states with lower processing and licensing fees than Oregon and Colorado. Still, these two states stand out when factoring in ease of process and profit. 

Oregon

The state of Oregon was the first of many states to decriminalize the small amount of possession of marijuana back in 1973. Medical and adult-use cannabis are legal in the state, with the first official legal sale in January 2017. 

Fast-forward to today. Oregon is one of the states that offers the cheapest application, licensing, and renewal fees for dispensaries. The application fee is $250, while the licensing and renewal fees are $4,750. You would only need to pay $5,000 upfront to legitimize your business. The cost of opening a dispensary is significantly lower for small businesses. 

As for inventory, recreational marijuana in Oregon costs $210.75 per ounce, well below the national average of $326.06 per ounce. The state-wide retail tax is also comfortable at 17%. 

Colorado

Medical and recreational marijuana became legal in Colorado in November 2012, with the first official legal sale in January 2014. Colorado has a cheap dispensary application fee of $100. The licensing fee is slightly high ($7,000), but the yearly renewal fee is only $500. 

Although slightly higher than Oregon, Colorado is a melting pot for cannabis dispensaries and cannabinoid companies. It’s a popular destination for cannabis enthusiasts with recreational or medicinal in mind. The $241.74 price per ounce is attractive for consumers and cannabis business owners. 

Tips for Reducing Startup Costs

Starting a business costs thousands of dollars. Even if you’re confident about your finances, you should still strategize how to cut your startup costs. Working with VCs and angel investors is one thing. There are other creative tactics to reduce costs; here are some.

Research and Planning

Building a business plan helps minimize costs because you’re actively controlling how much will go into each facet of your dispensary. It also indicates whether you’re overspending or not being efficient with your money. 

Research and planning include the following strategic steps:

1. Market research: Conduct comprehensive research on your competition and market to determine the best location to lease and possible product offerings. This will direct your money to the best possible business decision.

2. Knowing regulatory compliance: Shortcutting your way around state and local fees will result in a costly legal mistake. Hence, staying informed of local regulations and fees helps you stay on top of what you need to pay. 

Negotiating Leases and Contracts

In negotiating your way to come up with reasonable leases, here are some things to do:

• Research the market rate of commercial spaces that allows the nature of your business to negotiate more effectively. 
• Consider long-term leases to secure lowered monthly rates.
• Secure comfortable renewal options and exit clauses for leases.
• Have a lawyer review all partner contracts before signing. 
• Build a relationship with your landlord.

Choosing the Right Suppliers

Here are the factors to consider when choosing the right supplier for your dispensary.

• Quality of their products. 
• Price point compared to other suppliers. 
• Overall reputation and track record. 
• Choosing local suppliers over exporters. 
• Favorable payment terms like extended payment periods, discounts, etc. 

Implementing Cost-Effective Marketing Strategies

Ambitious dispensary owners might want to implement aggressive marketing strategies immediately. However, marketing can be expensive, especially if the company has yet to perfect its system and product. 

Trim marketing costs by hiring only essential personnel that align with your business’s current size. When it’s time to scale up, consider widening that department. 

Seeking Financial Assistance and Investment Opportunities

There are funding options for dispensaries, albeit limited, because marijuana is still classified as Schedule I in the country. Private investors and a few credit unions, like Affinity Federal, have begun offering financial products and services to wholesalers, cultivators, and retailers in the cannabis business.  

To make these financial opportunities, consider the following: 

• Create an attractive business plan for investors. 
• Expand your business network through conferences and similar industry events.
• Target investors with a history of delving into the cannabis business.
• Inquire with niche banks who are open to extending credit with dispensaries.
• Try crowdfunding platforms dedicated to the industry. 

Final Thoughts

A substantial amount of capital is needed to kickstart a dispensary regardless of state. Licensing fees, leases, product inventory, and manpower contribute largely to your initial and overhead expenses. 

While opening a dispensary is normally expensive, seeking financial assistance, negotiating, choosing suppliers, and other strategic solutions can significantly reduce that financial burden. 

When it comes to partnering with the best in the cannabis industry, The Hemp Doctor Wholesale is the team to beat. Our average partner store’s profit margin hits 60% or more. You’ll also get to choose from various classic and new products introduced monthly. 

Speak with us today (1-888-206-3832) or visit our website for more information on how we can help your business.

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