How much money do you need to open a dispensary? We’ve all witnessed the staggering growth of the cannabis industry. In 2020 – fueled by the pandemic – legal sales of cannabis surpass $17.5 billion, a more than 45% increase from the previous year. While other businesses struggled under the weight of lockdowns and social restrictions, the cannabis industry went into overdrive.
Nor is cannabis even legal in 50 states. There’s still more expansion, more customers, and more profits waiting.
Little wonder then, a single question is on every entrepreneur’s lips: how much do you need to open a dispensary? Followed closely by, is opening a dispensary profitable?
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Indeed, with attitudes continuing to change and tentative signs of loosening federal restrictions, understanding the cost to open a dispensary is critical for future success.
In this article, we’ll explore the hidden costs to open a dispensary – providing a precise estimate of how much money you need to open a dispensary. We’ll also delve into whether opening a dispensary is profitable. After all, no one wants to plow money into an unprofitable business.
Security systems. Premises. Stock. Licenses. State Applications. Computer systems. Opening a marijuana dispensary is an expensive business – before you’ve even opened your doors.
Let’s go through each of the major costs.
Fees vary from state to state. In California, for example, you’ll pay an initial non-refundable application fee of $1,000. In contrast, Colorado charges $5,000 for the application and a further $2,000 as a licensing fee.
Expect to pay around $5,000 on average across the US, ranging from $1,000 to over $10,000. But, without a license, there is no business – this is a cost you’ll have to swallow.
In some states, there are also a limited number of licenses, meaning you’ll know how to buy out an existing owner. That does have some advantages, as you could buy the entire business for a single cost.
You have two options: buy or lease.
To buy a property, you can expect to pay between $128/sq ft for a low-level cannabis business up to $393/sq ft at the high end of the market. Leasing can always be a preferable option – rates vary between $3,500 to $10,000 or more a month, depending on the size and location of the property.
Once you’ve purchased or leased premises, you’ll need to kit them out. You’ll need to consider this factor when buying your dispensary. Strip malls are less customizable, but they’re also cheaper to renovate compared to free-standing buildings.
According to Grow America Builders, the costs are as follows:
In short, it’s an expensive enterprise with significant upfront capital costs. You’ll also need to consider a further $50,000 for the design elements, like, chairs, check-out counters, artwork, displays, etc. In addition, labor and material costs are increasing at the time of writing, which may be a factor for several years into the future.
To grow or not to grow – that is the question.
Growing is obviously cheaper long-term – you’re not paying someone else’s profit margin. But there are still significant risks, and it’s a bigger capital investment to open a dispensary and a cultivation business simultaneously. It’s not something entrepreneurs consider when asking how much to open a dispensary.
Expect to pay between $500/lb. to $1,500/lb., if you don’t wish to add in-house growing to the cost of opening a dispensary.
Staff wages will be one of the highest ongoing costs. At first, you’ll be paying wages without any profits pouring in – only later will they be covered by your income stream.
There are also many staff involved in a cannabis dispensary: budtenders, a store manager, a security team, and more. You’ll pay around $250,000 annually when paying standard industry prices of $10 to $20 per hour.
You’ll likely also need to hire professional services, like accountants, lawyers, bankers, etc. These will add up to around $50,000 annually, alongside a further $10,000 to $25,000 in marketing and advertising costs – this is non-negotiable (and should be considered a revenue-generating service if done smartly).
We warned you there are hidden costs to opening a dispensary. There are. You’ll need to pay for web design, development, and hosting (~$2,500). Then there’s installing security systems, including multiple camera feeds and metal/weapon detectors ($67,500). You’ll also need to purchase specialized computer software to monitor and manage your dispensary stock, salaries, and income ($7,000).
You can expect to spend between around $750,000 to $1,000,000 in start-up expenses (rising to several million depending on the property you choose). Now you need to know if the costs are worth it – is opening a dispensary profitable?
In a nutshell – yes.
It’s a high ROI business – with more than a fifth of dispensaries earning more than $1M a year. According to Statista, 24% of cannabis businesses saw profits increase, 20% saw no changes – only 6% reported a loss (44% could not compare).
The industry appears to be far from saturation and continues to grow year on year. NorthStar Finance, for example, estimates dispensaries make an average profit margin of 15% to 21%.
In a 2016 survey, only 12% of marijuana dispensaries were losing money, with 59% reporting being either “very profitable” or “modestly profitable”.
The market has only grown since then. If you can afford the start-up costs, there’s never been a better time to open a dispensary.
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