Finding success in the cannabis industry is a highly nuanced process. Not only must you navigate the regulatory hurdles of a semi-legal business, but you must also outperform your competitors. The best cannabis businesses constantly monitor the industry to capitalize on opportunities and avoid trappings. Within this process of assessment and change, location is a constant concern for dispensary businesses.
The confines of state borders limit cannabis businesses, so the concept of location takes on a whole new level of significance in the industry. Cannabis dispensaries cannot simply pivot to an online business model if in-person activity slows - the laws don’t allow for it. As a result, choosing the right location for a dispensary is a complicated affair that has significant consequences on the success of a business.
To help you better understand what it takes to choose a good cannabis dispensary location, MOST Consulting wanted to walk you through some essential criteria.
State-Specific Cannabis Laws
The first thing to consider in choosing a location for your cannabis dispensary is whether or not it is legal to operate in the proposed locale. Even in states with legalized medical or adult-use cannabis, counties and municipalities can ban cannabis businesses if they see fit.
After California legalized adult-use cannabis with the passage of Proposition 64, many people assumed that the Golden State would be “open for business.” However, Californians got a rude awakening when many conservative regions of the state did not approve cannabis businesses. Reports show “[o]nly 161 of California’s 482 municipalities and 24 of the 58 counties have opted to allow commercial cannabis activity of any sort.”
The fact that smaller government bodies in counties and municipalities can ban cannabis businesses further complicates an already confusing market. As such, not only must cannabis dispensaries deal with conflicting federal and state laws, they must account for the hyper-localized nuances of small-town lawmakers. These factors make the process of choosing a successful dispensary location all the more challenging.
Location and Cannabis Business License Applications
Your chosen dispensary location also plays a critical role in the cannabis business license application process. It’s crucial to note, choosing the suitable building for your dispensary will directly influence your ability even to open a dispensary in the first place.
Many of the largest cannabis markets in the country utilize the “point system” to decide which companies will be awarded business licenses. This system uses a series of metrics to decide whether or not a proposed business is the best choice for a given market. Importantly, regulatory agencies only award licenses to companies they believe will be successful. Choosing to place your dispensary in a location with poor business potential will significantly hinder your chance of getting a license.
Beyond the business potential of a location, licensing committees also scrutinize applications to ensure proposed dispensaries don’t infringe upon state laws. To illustrate, the California Department of Consumer Affairs requires you to show that your dispensary is not located within “a 600-foot radius of a school.” In this instance, it would be a shame if you overlooked the rule and poured extensive resources into a failed application.
Finally, your cannabis business license application will not be approved if your proposed dispensary is not zoned correctly. For example, the City of Denver, CO, only allows cannabis companies to operate in commercially zoned buildings. In this instance, an oversight error on zoning laws could be detrimental to your application.
Real Estate Considerations for Dispensary Locations
Before you consider what type of sales might be generated at a proposed dispensary, you must ensure the location is also a wise real estate decision. Whether you are renting or purchasing a building, your bottom line is intimately bound to your operating expenses. Therefore, inflated mortgage and rent payments could render your dispensary unprofitable from the outset.
When considering a dispensary location, the condition of the building is a significant concern. If you are renting, it doesn’t make sense to choose a facility that needs much remodeling work, as you will not gain any equity from your investment. However, if you plan on purchasing a building, remodeling could be a wise choice, especially in areas where real estate values continue to rise.
Finally, you should consider monthly rent or mortgage payments for your proposed location. To ensure profitability, we recommend you set a conservative estimate for monthly sales and weigh it against your monthly rent/mortgagee expenses. If the numbers don’t add up, it’s best to keep looking for another dispensary location.
The Importance of Location for Retail Dispensary Sales
After undergoing the complex process of finding a dispensary location that makes sense from legal and real estate perspectives, you must also ensure it will be good for business. To weigh the potential business performance, you can utilize many of the criteria used by traditional “brick and mortar” retail stores.
Importantly, you must ensure that your dispensary is visible to people passing by. Even if you managed to get a dispensary location in the busiest part of a city, it wouldn’t mean much if people can’t easily see your store. Therefore, when assessing a potential site, you should drive by a few times to understand what it looks like from the road.
You are well-advised to research the demographics of your chosen neighborhood before opening a cannabis dispensary. While acceptance of cannabis has come a long way since legalization, many people still demonize the herb. Therefore, it could be a wrong business decision to set up shop in a neighborhood that doesn’t agree with your values concerning cannabis usage.
Competition is another essential factor to consider when choosing a dispensary location. If there are already five dispensaries on the block where you plan on doing business, it would likely be a poor choice to invest in that location. If you run into this problem, we recommend you be patient and keep looking until you find the perfect fit.
Being a successful cannabis business owner is no easy task. Today, operators must handle doing business in a federally illegal industry that is awash in conflicting rules and regulations. Beyond these exorbitant challenges, you must have the gumption, grit, and intelligence to outperform your competitors. When choosing the right location for a cannabis dispensary, you need to utilize every resource you have. In the end, this all-important choice will dictate your cannabis business’s performance throughout its duration.
As seen with most facets of cannabis, MOST Consulting recommends doing extensive market research before zeroing in on a dispensary location. By and large, it’s likely a good idea to outsource expert help from a consulting firm or legal team that specializes in the cannabis industry.