People say that if we do what we want, we’ll never have to work a day in our lives.
For Cannabis enthusiasts, this could mean opening their own cannabis business.
But, how much does one need to prepare for one?
In this article, we write everything you need to know about the cost of opening a cannabis dispensary franchise. Continue reading to find out more!
How Different Is the Cannabis Industry Compared to Other Industries?
You might be thinking, “How can opening a cannabis business be different from opening any other type of business?“
In this section, we will tell you how different it is to break into the cannabis industry compared to others.
1) Cannabis Is Federally Illegal
The marijuana industry is NOT legal across all the states of the country.
What does this mean as a business owner?
Since marijuana might be illegal in the state next to you, you can’t ship cannabis products across state lines. Every product must be grown in-state.
There might also be some state regulations wherein you can’t grow your own flower, but you can sell them. In this case, you’d still have to import it from another state.
What cannabis franchises do in this scenario is they must have in-state grow operations to supply their cannabis dispensaries, or they allow each store to grow or source their own.
2) Steep Banking Laws Involving Cannabis
In the business world, a marijuana dispensary falls into a very gray area.
There are a lot of countries in the world wherein marijuana is illegal, so there is no standard perspective on how the industry approaches a business owner of a cannabis dispensary.
Unfortunately, this could mean that banks are not as eager to do business with a cannabis franchise/franchisee for their initial investment in other opportunities.
Many banks don’t even transact with marijuana dispensaries or any transactions with its franchises.
An alternative for owners is to do business with credit unions or private marijuana banks.
These financial institutions know that there is a high demand for them for people who want to have franchises, so they charge a higher holding fee.
This can run up to $2,000 per month, subject to taxes and state regulations.
3) The Cannabis Industry Pays Higher Taxes
Businesses in other industries can deduct their operational costs from their revenue before they get the taxable amount.
This does not happen for licensed dispensaries. There is a tax rule called 280E that prevents companies in the cannabis industry to deduct their operating expenses.
This means that the revenue is directly the taxable amount, and the business has fewer opportunities for deductions. This means an overall higher tax and less profit.
How Much Does a Cannabis Dispensary Cost in the Different States?
There are different types of costs that are associated with a cannabis dispensary. In general, it could range from around $150,000 to $2 million.
To help you understand what they are, we will be breaking down the overall cost and discussing them one by one.
Dispensary License Application Fees
As with anything else, the initial fee to “break into the game” of the marijuana industry involves about $5,000 on the license fee alone.
This non-refundable application fee for a license is in addition to the annual license fee, which can cost around $1,000 to $10,000.
Depending on the state, the applicant cost and licensing fee may be one and the same or two completely different costs.
Before you have even sold your first gram, the licensing fee and the application fee are often the forgotten start-up costs of having your own marijuana dispensary.
Real Estate Costs
As with any other type of business, one’s success in franchising may depend on the location of the dispensaries.
Not only will it determine foot traffic, but physical geography will also dictate state regulations on a small business, taxes, competition, and other dispensary costs.
Depending on your state and county, there may be strict rules on where you can position your store, regardless if you are selling medical cannabis or for recreational use.
For example, some regulations prohibit building or opening a cannabis dispensary or franchise within close distance to schools or where children are present.
Other unspoken rules may also be that a dispensary owner must not build their store near or around an already existing cannabis dispensary.
Regardless of these rules, real estate costs dispensaries a premium. We cannot give you an exact range but expect this to run in the hundreds of thousands.
Other start-up costs related to real estate include remodeling, creating one’s branding, optimizing retail floors, and adding amenities or features that may entice buyers.
Ongoing Costs/Operational Costs
Operational costs are the one constant in the cannabis market. Of course, before you open your doors to your franchise, you must have the following:
- Fully compliant POS system
- Security system
- Products
- Employee Salaries
Let’s discuss these in detail one by one.
POS System
It has been a proven business model that a POS system is necessary for cannabis dispensaries.
A quality system may include seed-to-sale software and cannabis distribution software.
Modern POS software also helps check the inventory and other technical parts of the job that a store manager usually handles.
Once you have established this part of the business, your customers will have an easier time purchasing, especially if you offer online payments and other payment methods.
For this, we advise that you partner up with a leading cannabis software company to determine your needs in a POS system.
In this way, you can also automate ongoing expenses into the system so that monthly bookkeeping and accounting can be made easier.
The electronics and other technical stuff may run about $25,000. Not to mention other hardware and applications that you also want to use.
Security System
Of course, even if your marijuana dispensary is considered federally legal in your state, there are still several concerns when it comes to security.
Depending on where your real estate is located, you may heighten up your security, especially if it is near a place where cannabis-related crimes or issues are prominent.
Quality Products
Once the POS and security systems are up and running, the next thing to do is to ensure that you only have the best supply and source for your marijuana dispensary.
Sometimes, the location of your real estate must be factored in to determine the quality of one’s supply.
For example, recreational cannabis and medical marijuana come from two different cannabis strains, which may have to be sourced from two different sources.
Ensuring that both supplies are transported through a quality logistics company is important in only giving the best to the customers.
Employee Salaries
In relation to ensuring quality before it arrives at the store, it is important for a cannabis operation to maintain the quality of its products.
To run a business smoothly, an owner must employ and fully train their employees, especially if they do not have any experience in the cannabis market before.
Aside from just assisting the clients when they purchase, the employees must also answer customer inquiries and negotiate, more so when the dispensary owner is not around.
A highly-trained staff is an important part of the ongoing costs as the people are at the forefront of the business and directly interact with your customers.
If you have a few budtenders, a supervisor, a manager, and a few maintenance personnel, you can expect your annual payroll to cost around $250,000.
As much as possible, ensure that you are giving them a living and minimum wage, as labor policies on cannabis franchising may be stricter in some states.
Marketing and Advertising Costs
Brand recognition is important when you are starting your own small business.
Even when you are franchising a business that has already made a name for itself, branding and advertising yourself is still important in order to grow your business.
Aside from having a good location, a dispensary can utilize the power of social media to save costs. Just be aware of the industry regulations, especially when running ads.
Legal Costs
Because of the many security issues surrounding a cannabis dispensary, you would not want to skip on employing an attorney on retainer.
When you have an attorney on retainer, you can save valuable time, energy, and money.
You might be thinking that it is not necessary to include legal in the start-up costs, but in the long run, you’d be grateful that you protected yourself legally.
Especially if you are franchising, the risk is much higher as you have a reputation to protect.
Not to mention your dispensary and what it does can also affect other dispensaries in the industry.
An attorney on retainer can avoid litigation, ensuring that there would be more franchise opportunities in the state and that the government will not be against the industry.
Your annual legal costs may run up to $50,000, but believe us when we say that this might end up saving you a million dollars when you do encounter problems in the future.
Insurance Costs
Related to the legal costs, having robust insurance protecting your business will go a long way.
Running medical marijuana dispensaries or even recreational use has many vulnerabilities.
State laws may change anytime, or an accident may happen that may cost you a lot of money.
Having an insurance policy may seem like an unnecessary expense, but being protected may save you a million dollars in the future.
What Are the Benefits and Risks of Opening a Cannabis and Marijuana Dispensary?
As with anything, there are a lot of considerations that we have to weigh before plunging into a cannabis business.
In this section, we list down all the risks and benefits that you can expect from a business in this industry:
The Benefits
As we have seen in many states, the cannabis industry has been seen and projected to grow exponentially.
Expansion and consolidation have been seen in the market where sales are established, such as Colorado and Oregon.
In new markets, on the other hand, legalization is allowing the acquisition of a dispensary license, and new stores are opening in order to be the first in the place.
Whether you are opening your own marijuana dispensary and acquiring your own dispensary license or franchising an established business, there is a quick time to market.
Profitability is even out of the question, as cannabis businesses grossed more than $17.5 billion in 2020 alone. It is also expected to grow double or triple by 2026.
Have we mentioned that polls have also been showing that Americans are in favor of legalizing marijuana franchises? This means that there is a consistent demand and market ready.
If you are the first person in your state to open a marijuana dispensary, you also have the benefit of being the first company to open, and you gain brand recognition from that.
The Risks
Although the benefits of building and franchising marijuana businesses may seem tempting, we want you to remember that there are also many risks you must consider.
First, the application fee, annual license renewal fee, and licensing fee in some states may be set at a high price in order to discourage new franchises from existing.
Setting a high barrier for entry is a usual tactic to ensure that only people with enough money and preparedness can enter the game.
Another risk is security. A dispensary must be protected at all costs, as many organizations and people would want to get their hands on that flower illegally.
A marijuana business also has a slightly higher vulnerability when it comes to legal matters.
An issue can arise involving the use of cannabis, such as drunk driving or crimes of passion wherein marijuana use is a circumstance, and it can trigger a series of unfortunate events.
There are many organizations that would want to criminalize the industry and may use a single incident to snowball legislation against the business.
Frequently Asked Questions (FAQs)
Here are the commonly asked questions related to the marijuana dispensary business:
Where Is It Cheapest to Open a Dispensary?
Oklahoma is one of the cheapest states wherein you can open your own dispensary.
Case in point, the licensing fee for medical marijuana dispensaries goes around $2,500, which is almost half of what they ask for in other states.
Given that you find real estate that has good foot traffic but will not make you have a run for your money, the barrier of entry in Oklahoma is lower than in other states.
The operational costs will be around $80,000 to $150,000, and this already includes running your own POS system, the cost of delivering the products, and maintaining your dispensary.
Not to mention that the cost of living in Oklahoma is significantly lower too, which means that the minimum wage is also lower compared to others.
What Is the Profit Margin of a Dispensary?
On average, the profit margin of a dispensary in North America has a net of around 15% to 20%.
The reason for this is that a dispensary is usually much more profitable than any other retail store, especially in states that have legalized medical marijuana.
With the recent round of legalization in New Jersey and New York, multiple entrepreneurs have been wanting to venture into the business, increasing the overall investment.
For example, a dispensary in an established market such as Colorado or Oregon has gross revenue of $2M per year.
Depending on the taxes and regulations of that state, the owners of that dispensary can expect to take home around a minimum gross profit of $240,000 in one year.
Of course, if you are building your own dispensary from scratch instead of franchising, there may be more barriers to entry before you actually earn more than what you invested.
But, in general, whether you are franchising or building a marijuana business on your own, the industry remains lucrative, and like real estate, it will only go up from there.
How Much Does a Dispensary Owner Make a Year in California?
California is one of the best places to build a marijuana dispensary. But is the benefit worth the cost, though?
Compared to a dispensary owner in another state, owners in California can earn up to around $500,000 in one year.
More good news! California is one of the fastest-growing and largest markets for cannabis, but it has low barriers to entry for those who will franchise or build.
For a dispensary license, expect to pay around $1,000 for the non-refundable application fee. Once that is done, expect to shell out around $4,000 to $120,000 to get the licensing fee.
However, more opportunities in California may also mean higher expenses, at least for the first few years.
The estimated value of the real estate in California is also relatively higher compared with other states, so don’t forget to take that cost into account.
Expect to pay your employees a bit higher than other states would, as the living expenses are also significantly higher. This will cost you around $30k-$70k each month.
How Much Will It Cost Me to Open a Dispensary in West Virginia?
In West Virginia, only the use of medical marijuana is legalized.
When building your dispensary or franchising, the application fee would be the same at around $2,500. The licensing fee will also cost around $10,000.
On top of the non-refundable application fee, there is also a renewal fee of $2,500.
If you are franchising a known business in West Virginia, remember that your dispensary can only sell medical marijuana.
Let your franchise manager know if this will change anything in your franchising policies. Who knows, your franchise fee might even be lower as you can only see one product!
What Is the Cost of Opening a Dispensary in Rhode Island?
Unfortunately, there is no dispensary license available in Rhode Island yet. But, the cost will come from the application fee.
The application fee is around $10,000, and the licensing fee is around $500,000.
In Rhode Island, too, building or franchising a dispensary is a million-dollar startup. The cost is really high, but the returns are lucrative once you set the ground and establish the name.
What Is the Cost of Opening a Dispensary in South Dakota?
Compared to other states, it may be a bit hard to penetrate the market in South Dakota.
While the application fee stands at around $5,000 for all types of dispensaries, there may be an additional cost depending on the county.
For instance, the additional cost in Sioux Falls charges under $100,000 on top of the application fee.
For beginners in this field who want a good return on investment and a high number of sales, we would not recommend you to build in South Dakota.
While entrepreneurs know how to make it work in tough situations, the growth in this area is small at the moment, and it may take a while before investors see a change.
Is New Mexico a Good Place to Start This Business?
Although it’s a new place, New Mexico has shown wonderful potential in the dispensary business.
It has already generated almost 30% more than Colorado’s net retail profit in recreational cannabis use.
A dispensary is categorized by type in New Mexico, which is why the cost also varies depending on what kind of dispensary you are building.
If you’re only applying to be a manufacturer or courier of cannabis in New Mexico, then the application fee would be around $1,500. This is in addition to the $1,000 per licensed premise.
However, if you are going to apply for a retail dispensary license or to produce it, then the application fee is $2,500.
The application fee also varies whether you are creating a vertically integrated establishment, too, or a micro business. The application to the latter is around $2,500, too.
This is especially important if your dispensary is planning to grow your own flower in New Mexico, too. In this case, the application fee will be $125,000.
Is It Okay to Open a Dispensary in New Hampshire?
Yes, opening a dispensary in New Hampshire is a good opportunity, as long as you remember that there, only medical cannabis is considered legal.
Aside from the foreseeable cost, the application fee is around $3000 when you are requesting and an additional $20,000 acceptance fee if you are selected.
Opening a dispensary in New Hampshire is a bit of a competitive process as there are only a handful of available licenses that can be given out.
However, if you do prove that you have the financial means and business expertise to navigate being a dispensary in the area, then you have a high chance of being granted one.
Can I Open a Dispensary in North Dakota?
Yes, cannabis is legalized in the state, but smoking it for recreational activities is prohibited.
Don’t worry, though, as both recreational and medical use have the same site registration, and they also have a similar cost.
Is Franchising Better Than Building From Scratch for Dispensaries?
It depends on your goals and your risk tolerance. Both franchising and building one’s own dispensary have their pros and cons.
If you are looking for something that will cost less and will have an easier time penetrating the market, then a franchise will give you sales even as a new store.
However, you will have to think of the franchise fee on top of the application fee and the other types of costs associated with building a new store.
On the other hand, if you are building your own brand, you will have to invest in a cannabis business development fee to ensure that your business model works.
Looking at the brighter side, however, having your own brand will give you freedom and a wide variety of choices.
Franchise policies exist in order to protect the name from any accidents or the like, but having your own dispensary gives you the ability to make your own choices.
What Do I Need to Prepare When I Want to Open My Own Store?
Aside from the cost, you need to have patience when opening your own dispensary.
Some states take a while before they release your license, or some even take a while before letting you know that your application passed the initial stage.
Make sure that while you are waiting, you are also ready to accept whatever the outcome of your application is.
If it so happens that they did not accept your application, are you going to open a new store in another state or re-apply again? Consider the cost of these options, too!
Prepare your Plan B and Plan C, especially when the cost of the application fee and the cost of the licensing fee is already piling up.
Taking care of your own dispensary from the start will cost a lot at first.
But in the end, when you start harvesting the fruits of your labor, you’ll understand why a lot of people want a piece of the CBD business.
Conclusion
We hope you learned a thing or two from this article about the marijuana dispensary and its cost to build or franchise one.
Remember that the figures on this guide serve merely as an estimate and may not reflect the actual costs that you need to prepare.
Either way, we bid you good luck in starting your own franchise or business. Enjoy, and may your future business prosper!
