While the cannabis industry affords ample opportunity for entrepreneurs, it is by no means a "get rich quick" business. Especially when it comes to plant-touching companies, you can expect to invest significant money before ever turning a profit.
Of the business models on the market today, cannabis dispensaries are some of the most challenging operations to develop. Not only must dispensary owners navigate the complex waters of retail business, but they also have to account for working in a heavily regulated industry. This combination of factors results in excessive overhead costs related to licensing, infrastructure, inventory, and compliance - to name a few.
If you're interested in opening a cannabis dispensary, we want to help you understand what it might cost.
Application Fees and Business License Fees
Applying for a cannabis business license and paying the requisite fees is one of the first steps to opening a store. After your application is approved, you will be responsible for fees related to annual business license renewals. Notably, both cannabis business applications and licensing fees represent high overhead costs for dispensaries.
Please note, fees vary from state to state. Therefore, to get the most accurate estimate for your dispensary business plan, we recommend you research the market where you intend to do business. Here are a couple of examples for you to take a look at:
California Application & Business License Fees
The state of California has a relatively unique application and licensing fee structure for cannabis dispensaries. It only costs $1,000 to apply for a dispensary business license, which is significantly cheaper than most other state markets. California has a sliding scale that changes with the size of your operation when it comes to licensing fees. To illustrate, small dispensaries that sell less than $500,000 per year in product only pay $2,500 per year in licensing fees. Conversely, businesses that sell over $7.5 million annually must pay $96,000 per year in licensing fees.
Ohio Application & Business License Fees
Ohio is somewhat in the "middle of the road" when applyingand licensing fees for cannabis dispensaries. Regardless if they are awarded a license, each dispensary applicant must pay a non-refundable application fee of $5,000. Once a license is granted, all dispensaries must pay an additional $70,000 per year in licensing fees.
Real Estate Expenses
As traditional "brick and mortar" establishments, cannabis dispensaries are heavily dependent on location. Good dispensary storefronts are often challenging to find and can be extremely expensive. Therefore, real estate is a high overhead cost that any dispensary operation must carefully consider.
Please note, real estate expenses vary dramatically in different regions of the United States. To illustrate, setting up a dispensary in San Francisco, CA, will cost far more than a similar operation in Oklahoma City, OK, simply because real estate in San Francisco is far more valuable than in Oklahoma City.
Renting a Storefront
Good dispensary locations are tough to find. Not only must dispensary buildings be zoned correctly, but they must meet other compliance requirements related to schools, churches, and government buildings. Beyond legal challenges, dispensaries must be situated in locations that are good for business – including visibility and easy access.
In cities like Denver, CO, it is not unusual for companies to pay over $100,000 a year in rent for good dispensary locations.
Purchasing a Building
Purchasing a building is a better choice for dispensaries than renting a storefront, in most cases. When buying, your mortgage payments go into the equity of your store, significantly diversifying your business portfolio. This notion is also true concerning remodels, as investing large sums of money into a building you don't own is not a wise decision.
Depending on location, dispensary buildings can cost anywhere from $250,000 to over $5 million. Again, real estate expenses vary dramatically with different markets.
Launching Your Dispensary
With basic expenses out of the way in applications, licensing, and real estate, you have to invest money into the dispensary's infrastructure. Notably, there are certain elements that every cannabis dispensary must account for to operate legally and drive a profit.
Once you have either rented or purchased a building, you will have to remodel it as a dispensary. Again, costs for dispensary remodeling will vary significantly with each store. However, looking at similar operations like restaurants, the industry average for remodels is $500,000.
Functional security systems are critical in both the dispensary application process and day-to-day operations. Professional security companies charge around $10,000 to install camera systems that meet most compliance requirements. Beyond security cameras, you will likely need to spend a few thousand dollars on badging systems and door locks, as well as safes to store your product.
Next, you should invest in a Point of Sale (POS) system compliant with seed-to-sale tracking standards. Not only will this POS system be the financial centerpiece of your store, but it will also keep track of product inventory. Cannabis POS company Cova charges between $1,000 - $2,000 for hardware, plus an average of $600 per month in operating fees.
Hiring and Staffing Costs
As most dispensary owners know, labor expenses will likely be your highest operating cost. As such, a well-thought-out business plan will account for labor costs commensurate to living expenses in your particular area. Also, it's worth noting specific locales require you to have your core team built before you even apply for a dispensary license.
Beyond upper management, you also need to account for salary expenses for dispensary managers and budtenders. According to the job site Glassdoor, you can count on the following labor expenses for key dispensary employees:
Dispensary Manager Salary
- Average Salary: $60,000
- Highest Salary: $100,000
- Lowest Salary: $39,000
Dispensary Technician Salary
- Average Salary: $33,000
- Highest Salary: $48,000
- Lowest Salary: $23,000
As seen with almost every facet of the legal cannabis industry, labor expenses change in different markets. However, even small dispensaries should plan on spending at least $200,000 per year on labor.
Cannabis dispensaries can be highly lucrative businesses. Nonetheless, getting a dispensary off the ground can pose substantial financial risks. Most Consulting Group strongly urges you to research your particular market in detail to gain the most transparent picture possible of your overhead cost.
In the end, you can rest assured that even small dispensary operations will cost $500,000 to get started. On a larger scale, overhead costs range well into millions of dollars.