How to Start a Recreational Marijuana Dispensary

Part 1 - How to start a Recreational Marijuana Dispensary business - Background

A recreational marijuana dispensary business offers marijuana in various forms to the general public within state guidelines. Legal recreational marijuana businesses were unheard of not long ago, but in recent years various states have voted to allow the use of marijuana recreationally for adults 21 years of age and older. As of this writing, Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Washington, and Washington D.C. permit the recreational sale of marijuana.

Recreational dispensaries offer a wide variety of cannabis-based products, including cannabis flowers, edibles, topical salves, concentrates, and more. These businesses also provide knowledgeable advice on using such products so consumers can get the most out of their purchases.

Our guide is in 3 parts:

• Part 1 - How to start a Recreational Dispensary business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a recreational marijuana dispensary?

One of the most surprising aspects of starting a recreational dispensary for many entrepreneurs is the significant capital it requires. Depending on your state’s requirements, just getting your license to sell marijuana could cost tens of thousands of dollars. In Colorado, one of the most well-established recreational states, the application fee for a dispensary can cost as much as $15,000. Dispensary owners report a range of startup costs depending on the state. Some businesses required up to half a million dollars to start – including cultivation, fees, licensing, insurance, retail rental, and more – while others cost as little as $40,000.

What are the ongoing expenses for a recreational marijuana dispensary?

There are quite a few ongoing expenses for a recreational marijuana dispensary. You have to keep your inventory stocked, maintain legal compliance, and pay your employees. You should expect things to cost more in general for your business because of its unique nature. For example, not all commercial property owners want to rent retail space to dispensaries due to legal risks. Those that do are likely to charge you more for rent. You can’t use a standard point-of-sale (POS) system like other retail establishments because you need to track all of your sales according to state regulations. That means your specialized POS system may cost several thousand dollars to use each month. Exactly how much your expenses will be can vary greatly depending on the size of your operation and your local laws.

Who is the target market?

Depending on how familiar you are with marijuana, you may be surprised to learn just how many people are willing to purchase it. Young, old, and everyone in between can be found at recreational dispensaries. Some use it for recreation. Others use it for medical issues. What they all have in common is their appreciation of having a legal means to get what they need. If your community allows recreational sales, you will likely have plenty of customers to keep you busy.

How does a recreational marijuana dispensary make money?

A recreational dispensary makes money by selling cannabis products to the public. The number of cannabis products offered by dispensaries just keeps growing. Product manufacturers usually have well-established sales teams, so it is only a matter of contacting those teams to find plenty of options for stocking your dispensary.

How much can you charge customers?

While dispensaries may offer sales periodically, the cost of cannabis products is relatively consistent from dispensary to dispensary in a given area. Taxes make up a significant portion of the cost. For example, in Washington, there is a 37% sales tax on cannabis products. How much you charge a customer will depend on what they buy. Cannabis flower may run from $7-$20 a gram. Edibles may range from $10-$50.

How much profit can a recreational marijuana dispensary make?

Dispensary owners can make a solid profit depending on their location and the size of their business. Small dispensaries report earning between $100,000 and $250,000 from sales, while mid-sized dispensaries report earning $500,000 or less. However, more successful dispensaries report sales as high as $10 million.

How can you make your business more profitable?

If you do things right, you should be able to build a profitable recreational marijuana dispensary business. Good customer service and the right location can steadily increase your customer base and make your business more profitable. Probably the most important factor in profitability, however, may be counterintuitive. Invest in your legal compliance and tax compliance. Hire a lawyer and a CPA and have them ensure that your business is always following the rules. Failing to follow the rules can lead to substantial fees and possibly the end of your business.

Day-to-Day and Growth

What happens during a typical day at a recreational marijuana dispensary?

A typical day at a recreational dispensary includes ordering new products, stocking display cases, answering customer questions, making sales, and then cleaning up after closing and preparing for the next business day. All of these tasks are similar to many other retail businesses. However, as the owner of a recreational dispensary, you will also need to keep track of current and upcoming laws and maintain vigilance to ensure you are always in compliance with those laws. You will also need to keep meticulous books to ensure you are meeting your tax obligations and maintaining any necessary funding – because you cannot access traditional funding when selling marijuana.

What are some skills and experiences that will help you build a successful recreational marijuana dispensary?

Recreational dispensaries are retail shops at their heart, which means that certain skills and experiences – customer service, inventory management, bookkeeping – will serve you well. But you don’t have to have retail experience to be successful. Marijuana dispensary owners come from a variety of backgrounds. Most share some specific traits that help them establish their businesses, like persistence, attention to detail, and patience. You are entering a new industry governed by recent legislation that is illegal on a federal level. You want to be certain you are following the rules at all times because failing to do so could put an end to your business quickly.

What is the growth potential for a recreational marijuana dispensary?

The growth potential for recreational marijuana dispensary businesses is substantial. There is already a well-established market for cannabis products, and as those products are made legal, the potential market only grows. For businesses that can successfully navigate the complex startup challenges involved in recreational cannabis sales, there is considerable upside potential in the future. According to Marijuana Business Daily, US retail marijuana sales are projected to rise by 40% in 2020 alone.

What are some insider tips for jump starting a recreational marijuana dispensary?

Starting a recreational dispensary is hard work, but you probably already know that. The key is to pay attention to every detail and make certain you are covering all of your bases. Hire a lawyer and learn the laws inside and out. Be prepared to get creative about funding because banks will not help. Hire a CPA and pay your taxes – which will probably be much higher than you want them to be. If you can follow all of the rules and tread carefully, you can take advantage of a booming industry and likely earn significant profits.

One important thing to remember is that laws on recreational sales can vary considerably from region to region – so don’t assume what is legal in one location will be legal in another. Licensing can also be quite different in various regions. For example, Colorado legalized recreational cannabis sales in 2014, while Michigan took another five years to pass legislation. The newer the laws, the more difficult it may be to navigate the licensing process.

How and when to build a team

Running a recreational marijuana dispensary is not a one-person show. There is simply too much work to be done to do it all on your own. You will want to factor in hiring a small team to help you run your dispensary when developing your business plan. Your startup cost estimates should include enough employees to keep the shop open during business hours while you take care of behind the scenes tasks. Because you are running a cash business – since banks won’t work with dispensaries due to federal regulations – you will need to do everything in-person to pay bills, so you will often be busy while your employees serve customers.

Part 2 - Is a Recreational Marijuana Dispensary business the right fit for you?

Part 3 - Action plan to launch your Recreational Marijuana Dispensary business in 90 days