How Much Does it Cost to Open a Dispensary?
The cannabis industry in the United States is growing by leaps and bounds. In 2022, it is expected to hit $30 billion dollars in sales! Now is a great time to launch a profitable business, but how much does it cost to open a dispensary?
There is no one-size-fits-all. Most states have legalized the plant for medical and/or recreational use, but licensing fees, taxes, and demand differ. We have compared regulations, entry requirements, and market opportunities across the US to determine the average costs and top three locations.
How much does it cost to start a dispensary?
This amount varies greatly as it depends on a plethora of factors. Even the average estimate is a broad range: from $250,000 to $1 million. First, staffing and inventory costs will largely depend on the size of the operation. Secondly, dispensary startup costs vary geographically. Here is a breakdown of the key expenditures in 2022.
Obtaining a license is the first step for an aspiring dispensary owner. Be ready to spend at least $5,000 on the application — this is the national average. In California, the initial fee alone can reach $120,000! This payment is usually non-refundable. Your annual dispensary license cost will range between $1,000 and $10,000, depending on location.
The process also varies from state to state, but it is always extensive and includes stringent background checks. Another hurdle is the number of available licenses: in states like Washington, you can only get one from a current licensee. This may require over $25,000 excluding legal fees.
Finally, you will have to buy a separate license to cultivate your own cannabis. It is also possible to buy a dispensary for sale, but a fully operational business may cost upwards of $2 million!
Some states require that prospective owners prove they have enough liquid assets for operating a dispensary. You cannot start a weed business until you show that it can stay afloat in tough times. The median capital requirement is $150,000.
In some locations, applicants do not have to possess any assets. In other states, regulations are tough. Pennsylvania has some of the most unfavorable laws: to open a business, you need at least $2 million in assets, including 25% of liquid cash.
Location and Rent
Finding a rental space with good visibility can prove challenging. First, local regulations define the minimum distance from buildings and facilities where children may gather. In addition to foot traffic and parking, you should also consider repair and remodeling expenses. Opening a marijuana dispensary will require revamping to meet regulations, express brand identity, and optimize store flow. This could cost around $50,000.
Choose a location that is difficult to break into. Dispensaries are very attractive to thieves, as they accumulate massive amounts of cash on the premises.
Typically, a decent piece of real estate may cost up to $100,000 annually. Square footage will determine double taxation and rent under IRC 280E. After receiving a cannabis industry license, you must provide your physical address to the state. Business owners in Illinois have 6 months to comply with this requirement.
The majority of banks are reluctant to serve cannabis dispensaries. This is still a gray area on the federal level. Enforcement priorities could change at any moment.
Local credit unions are more likely to provide capital. On the flip side, they upcharge clients to compensate for the increased risk. Therefore, budget with high fees in mind. Institutions like private marijuana banks charge up to $2,000 in holding fees monthly!
Hardware And Software
Invest in technology that will optimize your company’s operations. A decent Point of Sale (POS) unit will help you save money in the long run. You cannot open a marijuana dispensary without reliable record-keeping. You will also need computers and a full security system with surveillance. In total, average upfront hardware and software costs amount to around $25,000.
Starting a dispensary requires standardized employment practices. Your business will need a store manager, budtenders, maybe a master grower, and other staff. You will need to hire one or more security guards.
The average annual payroll costs for a cannabis dispensary are upwards of $250,000. This is enough to pay a small team at industry standard rates. The size of operations will determine how many employees you will need.
If you are opening a dispensary to grow and sell your own product, add at least $500 per pound. If the state does not allow growing, quality products will cost around $1,500 per pound. You will also have to spend on edibles, topicals, and other items depending on your product range. Other regular payments will include taxes, license renewal, and trademark protections.
Attracting and retaining customers also comes at a price — typically, between $10,000 and $25,000 annually. Dispensaries can take advantage of special digital marketing offers to promote their brands at a low cost.
Insurance and Legal Services
This industry has many vulnerabilities from a legal standpoint. It is a good idea to hire an attorney on retainer and take out a robust insurance policy. These expenses may add up to $50,000 per year.
Startup and day-to-day costs should be considered along with profitability estimates. According to available statistics, the vast majority of marijuana businesses in the USA were either “very profitable” or “profitable” even before the pandemic. Only 29% broke even. The average dispensary profit was between $1.8 million and $3 million annually before taxes. In 2020, total sales shot up by over 50%, which means the profit potential is even greater!
How much does it cost to open a dispensary? Here are the main expenses you will incur:
|Type of Costs||Average amount|
|Real Estate Costs||$100,000/year|
|Hardware & Software||$25,000|
|Security & Surveillance System||$50,000|
|Insurance & Legal Retainer||$50,000/year|
|Total||$250,000 – $1 million|
In what states can you open a dispensary?
As of now, 18 states and Washington, D.C. allow recreational adult use of marijuana. Medical use is legal in 37 states, and adoption is growing quickly. This is hardly surprising, as over two-thirds of US residents believe marijuana should be legalized. The application costs, taxes, cost per gram, and numbers of available licenses vary. Here is the full list of locations allowing both medical and recreational use:
- New Jersey
- New Mexico
- New York
- Washington, DC.
What is the cheapest state to open a dispensary?
As we have shown, licensing fees are just the tip of the iceberg. The cost of starting and running a dispensary includes local taxes and other costs. Your bottom line will also depend on the cost per gram, which varies from state to state. Considering the ease of market entry, initial costs, text climate, and market opportunities, here are the top three locations for your new cannabis dispensary in 2022.
Oregon is the national pioneer and leader in cannabis sales. Entrepreneurs can get started relatively affordably ($250 is the lowest fee in the USA), and applications for all cannabis business types are accepted. This is the cheapest state to open a dispensary in 2022.
Other important benefits are the absence of sales tax and excise tax on medical marijuana. For recreational marijuana, the latter is 3% lower than the national average. These advantages outweigh the main drawback — a low cannabis sales price of $6.65/gram.
In 2013, Colorado became the first state to legalize recreational marijuana. Today, cannabis businesses of all types can apply for dispensary licenses for $4,500, which is lower than average. The competition in the market is quite fierce, and the price per gram is just $7.14. However, the local demand for ganja is robust. The excise tax is 15% for recreational use and just 2.9% for medical marijuana.
Despite the higher-than-average licensing fee of $6,000, Michigan is one of the best locations for dispensary owners. First, the local excise tax is merely 10%, and medical marijuana is only subject to a 6% sales tax. Secondly, marijuana is sold for $9.74 per gram. A large population size also ensures a ripe market for your products. This outweighs the cost to start a dispensary.
|State||License fee||Price per gram||Excise tax|
|Oregon||$250||$6.65||17% (0% for medical)|
|Colorado||$4,500||$7.14||15% (2.9% for medical)|
|Michigan||$6,000||$9.74||10% (6% sales tax on medical)|
The question “how much does it cost to start a dispensary?” does not have a clear-cut answer. Depending on the state and size of your business, you may need between $250,000 to $1 million. Getting a license to sell weed is just the beginning. Based on our analysis, Oregon, Colorado, and Michigan are the most affordable locations in terms of startup costs.
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