There is a growing interest among entrepreneurs in how to open a dispensary following the growing wave of legalization for both medicinal and recreational cannabis.
With medical cannabis undergoing widespread legalization, both investors and entrepreneurs are clamoring to be the first to establish themselves in this exciting infant industry. However, going first is not always best.
There are various issues that you have to consider before you decide to even ask how to open a dispensary. Cannabis is a highly regulated substance—even in states where it has been legalized. There are many legal factors that you have to consider before you decide to open a dispensary. What are the laws regarding opening dispensaries in your state or province? What are the required licenses and permits for a dispensary in your location? These are just a few of the legal assessments you have to make before you decide to open a dispensary.
However, legal requirements are not the only hurdles you have to overcome before opening a dispensary. Given that a dispensary is also a commercial business, you also have to consider the business side of the venture. This means you have to prepare a business plan, put a team together, find suppliers, raise capital, pick a location and design a marketing strategy. These are just a few of the things you have to think about and plan for before opening a cannabis dispensary in your area.
Just because the cannabis industry is new and exciting, it doesn't mean that it is exempt from the rules of operating a successful business. This is why you have to be methodical about the process of opening your dispensary. You have to be ready to do the necessary research and check off all the boxes. You should also consider what you might look for in other hires, and ask yourself the same things.
We have prepared a comprehensive guide to help keep you on track as you embark on this exciting journey—starting with a detailed list of things you need to consider before you open a dispensary.
Much like any other business, you must have a passion for the cannabis business before you venture into opening a dispensary. It will feel like a heavy burden if you are simply trying to profit from a new industry without a passion for running your own cannabis dispensary.
As you will discover in this guide, it is hard work to start a cannabis dispensary. It will take a lot of time, resources, and commitment to see it through conception to success. You will be more prepared for the long haul if the cannabis business is your passion. Many early birds in the industry are suffering from severe attrition because they thought it was going to be a get-rich-quick scheme.
The cannabis industry is no different from any other industry. You have to work hard, be smart, and have a bit of luck to be successful. Because it is still early days for the cannabis industry, it is probably harder to start a cannabis dispensary than a business in an established industry with well-known rules and regulations and an experienced investor base. So it is important that you are sure that it is your passion before you invest your time, money, and social capital into it.
When considering opening a cannabis dispensary in either Canada or the United States, choosing the location you wish to set up in is key. The state or province you live in will determine whether or not you are legally permitted to open a cannabis dispensary and the unique requirements and licenses for you to open one. For example, thirty-six out of the fifty US states allow medical use of cannabis.
Because cannabis is a Schedule 1 controlled substance that is not allowed for medical or recreational consumption by the United States federal government, there is no universal federal legislation overseeing its production and sale. As a result, the responsibility to decide these things has been left to the legislatures within the states. In some states like California, each city has the right to make its laws. Less than a third of all the cities in California allow medical-use cannabis business within their borders.
This decentralized approach has resulted in different laws, requirements, and licenses for each state or city. Each state has its own licenses and requirements for applying for them.s. The states also control how much THC or CBD is in the cannabis that dispensaries can sell to their customers.
The states also regulate what cannabis derivatives can and cannot be traded. An excellent example of this is the recent ban on Delta-8 THC by many states, including Colorado, which allow both medical and recreational consumption of cannabis. This is why the location where you intend to open your cannabis dispensary is essential.
Curious to find out what states might legalize cannabis next? The research has been done here.
It is crucial that you take your experience in the cannabis industry into account before you decide to open a dispensary. Have you ever worked for a cannabis dispensary or retailer? Are you familiar with the ins and outs of the trade? If not, are any of your partners experienced in the cannabis retail industry? While it is not impossible to run a successful cannabis dispensary without any prior experience in the cannabis industry, there is a steep learning curve ahead if you find yourself in that situation. The best thing to do is to surround yourself with a team of experienced partners that can bridge the knowledge gap and share best practices with you.
If you have prior experience in the industry, then make sure you identify ways to leverage that experience to create a better product, brand, and business model for your dispensary.
If you don't have any prior experience in the cannabis industry, then the next best alternative is some experience in retail. Because dispensaries are retail outlets for medical marijuana, the basic rules of retail are mostly the same, and best practices can be carried over from retail to running your own cannabis dispensary.
This crossover between operating a dispensary and a mainstream retail outlet means that those with retail experience are better suited to handle the demands of running a cannabis dispensary. For example, if you have experience in sales and marketing, then you can deploy your tried and tested lead generation tools and strategies, as well as lead conversion, to generate sales from your leads.
To continue the example above, you are also better equipped at identifying your target market and the best platforms for implementing your marketing materials. All these skills from retail would be relevant to running a dispensary, so it is better if you have some prior experience working in or managing a department in a retail business.
Starting a new business can be a very capital-intensive process, regardless of the industry you are in. However, starting a cannabis business is even more capital-demanding than most. Due to the high level of regulation governing cannabis retail, there are many expensive licenses and permits that cannabis entrepreneurs have to acquire before even setting up. This high cost of entry into the industry means that you have to raise capital very quickly and creatively.
Because cannabis business is not legal on a federal level in the United States, cannabis businesses like dispensaries cannot access financing from mainstream lenders like banks and other financial institutions. Financial institutions are not allowed to finance companies that are not legal under federal law. While the SAFE Banking Act seems set to change that, it will take time before state regulations and financial service providers adjust to doing business with the emerging cannabis industry.
As a result of this limited access to structured financing from banks, many dispensaries and other cannabis businesses have opted to sell equity to raise the necessary capital. The bottom line is that you have to be able to raise capital before you open a cannabis dispensary—otherwise your dispensary's chances of survival are very low.
Just because your state and city allow cannabis dispensaries to open up doesn’t mean that you automatically qualify for a license. It is crucial that you determine whether or not you are eligible for a license in your area before you incur any significant expenses on behalf of your dispensary.
There are no universal criteria for either awarding or rejecting an application for a license. Every state and local government has its own set of requirements and 'red flags' that will automatically get an application rejected. For most states and provinces, the applicant for the license has to be a legal resident of the state or province they are applying for a license in. The applicant must also have a clean criminal record.
In British Columbia, any involvement with organized crime is considered a red flag that will earn an applicant an automatic rejection. In Washington, the state also requires a background check for the spouse of an applicant. Should the applicant's spouse be found with a criminal record, this would disqualify the applicant from being considered for a dispensary license. This is why it is imperative that you make sure you are eligible to apply for a license in your area before making any substantial commitments.
One of the trickiest aspects of opening a dispensary is finding the right location. There are two significant constraints when choosing a location for your dispensary: finding a location with enough passing traffic and finding one that is in the right zoning area for a cannabis business.
While most businesses like restaurants, clothing stores, and pharmacies are primarily concerned with finding a location with enough traffic, cannabis dispensaries also have to comply with the state or city’s zoning laws. Many states have specific zones that cannabis businesses are prohibited from setting up in—for example, zones close to schools.
In Alberta, cannabis dispensaries are not allowed within one hundred meters of a healthcare facility, a school, or a school reserve. This is to avoid school children having easy access to cannabis. In California, cannabis stores cannot be located within six hundred feet of a school, daycare center, or youth center.
Besides zoning issues, there are also issues with some landlords refusing to lease to cannabis businesses due to the unique challenges of having a cannabis business as a tenant. Because cannabis business is illegal under federal law, many commercial landlords can’t afford to take the risk of leasing to cannabis businesses.
This is because leasing to a federally illegal business would violate several provisions in the standard lease contract—provisions like permitted use, compliance with the law, licensing, and inventory insurance would all be hard to enforce against a cannabis business such as a dispensary.
Starting a business in any industry always involves a certain level of risk. Every entrepreneur knows that there can be no profit without incurring some risk. Risk is a core part of doing business since it is the willingness to take on the risk that earns the entrepreneur the return on their investment. However, there are several reasons why cannabis businesses are a lot riskier than the average business.
Firstly, the cannabis industry finds it disproportionately harder to raise capital and access financial services than other industries. This makes cannabis businesses high-risk ventures that are doomed to fail unless they can keep raising capital.
Secondly, the cannabis industry still faces an uncertain legal future as politicians in every state contend with the question of whether to legalize cannabis or not. In these uncertain times, it is not unheard of for a cannabis product that was once considered legal to be banned, as has happened with Delta-8 THC. Many entrepreneurs and investors who had invested in Delta-8 THC products and brands have incurred tremendous losses due to its ban.
Given this high volatility in the industry, you need to accurately assess your risk appetite and comfort before deciding to open a dispensary. While the promise of a high return is alluring, the risk of suffering a heavy loss is also high, and you have to be prepared for that eventuality as well.
If after all of this, all signs point to go, then congratulations, your journey to take a step into the cannabis industry has begun. It may be time to move onto the next step of understanding how to open a dispensary.
If that is the case, and you are looking to find ways to operate your dispensary more smoothly, be sure to consider smart workforce management software to help you succeed!