Start a medical marijuana dispensary by following these 10 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your medical marijuana dispensary. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Check out our How to Start a Business page.
STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a medical marijuana dispensary?
Obtaining a business license is one of the most substantial startup costs of opening a medical marijuana dispensary. In most states where medical cannabis businesses are legal, the cost for an application for a license is $5,000. However, the cost varies from state to state, as does the minimum requirement for startup capital, which can be as high as $250,000. If you plan to grow your own product, additional grower’s license fees are required. Other common startup costs include:
- Monthly rent, including a security deposit (for those who don’t own commercially zoned property)
- Initial inventory (some growers are willing to accept a percentage of sales in lieu of a complete initial payment)
- Display cases, bottles and jars
- Office supplies
- Security system
- Signs that display your company name and logo to create brand recognition
What are the ongoing expenses for a medical marijuana dispensary?
Ongoing expenses to maintain a medical marijuana dispensary may include:
- The cost of purchasing the product from growers
- Rent and utilities
- Staff salaries
- Advertising and sales promotions
Who is the target market?
Clients and customers are all patients who have been referred by a physician who has prescribed cannabis as a medical treatment for an existing condition.
How does a medical marijuana dispensary make money?
A medical marijuana dispensary makes money by selling cannabis products for medicinal purposes. Some dispensaries grow their own product to increase profits while others purchase the product from professional licensed growers and resell it at a higher price. Many also make money through the retail sale of pipes and vaporizers purchased in bulk at wholesale prices.
How much can you charge customers?
Customers are charged according to the quality and quantity of the product. The average cost of an ounce of medical marijuana is $200. However, high-grade organic medical marijuana can cost as much as $60 per gram. That does not include any state tax. Edibles such as cookies or brownies can sell from between $2 and $5 per single dose. Tinctures are priced from $15 to $50, depending on the strength.
How much profit can a medical marijuana dispensary make?
According to Forbes, established businesses can earn up to 50% profits, while new ones commonly earn about 20%. Annual sales figures are not yet available since the medical marijuana dispensary industry is new and still illegal in some states. It is still considered high-risk due to the discrepancies between state and federal laws.
How can you make your business more profitable?
Many medical marijuana dispensaries offer a variety of foods containing medicinal marijuana. Brownies, cookies, and other edibles have become extremely popular, and customers are willing to pay more for the extra time, effort and ingredients needed to make them. Some dispensary owners also grow their own product, which results in fewer expenditures and higher profits. Many dispensaries also sell accessory products, such as pipes and vaporizers, which sell for prices ranging from $20 to $700.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Medical Marijuana Dispensary Name Generator
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your medical marijuana dispensary is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Each state has different licensing procedures for growing and selling medical marijuana. This site has a list of state-by-state regulations , and also offers legal consultation for persons interested in starting their own medical marijuana dispensary.
Most states also require businesses to obtain a generic seller’s permit or resale certificate. Additionally, some states require both. A seller’s permit allows states to record and collect taxes from goods (and sometimes service) sales.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
In addition, certain local licensing or regulatory requirements may apply. Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
In some states, such as California, it is required that medical marijuana dispensaries be opened up as non-profit organizations. Attached is a resource concerning state-specific non-profit requirements: Cornell University Law School - Non-profit organizations .
Release of Liability
To avoid liability and potential lawsuits, medical marijuana businesses should have their clients sign a release of liability. Here is an example of one such form.
Recommended: Rocket Lawyer makes it easy to create a professional release of liability form for your dispensary when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.
Certificate of Occupancy
A medical marijuana dispensary is generally run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a medical marijuana dispensary.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your medical marijuana business will be in compliance and able to obtain a CO.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
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How to promote & market a medical marijuana dispensary
There are more restrictions on advertising within the cannabis industry than other types of businesses. Creating a blog on your business website is a great way to educate existing and potential customers about your products, their uses and their effectiveness. Social media can also be very helpful in building a regular clientele as well as offering sales promotions. Experts suggest featuring your best products and offering deals, loyalty rewards, and referral incentives.
How to keep customers coming back
It’s important to introduce yourself and your highly trained staff members to the community. Your customers will be referred by prescribing physicians. Planning or attending community education events and giving presentations to patient support groups and at medical facilities are also good strategies.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use.
Recommended: Find the best phone system for your business; check out our review of the Best Business Phone Systems 2021.
Start A Medical Marijuana Dispensary In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
This business is ideal for people who are passionate about alternative medicine and have a strong desire to help others. Those who have worked in the medical field are often drawn to this business, since the goal is to alleviate the severity of symptoms associated with many medical conditions that adversely affect quality of life. People interested in learning more about the practical application of the latest scientific discoveries in the fields of medical science, biology, and horticulture are ideal candidates for this business.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at a medical marijuana dispensary?
- Keeping abreast of federal and state laws and new legislation affecting the industry
- Learning about the medicinal properties of existing strains of cannabis as well as those of new strains currently under development
- Negotiating prices with growers and ordering products
- Educating and training staff members
- Communicating with patients about their needs and the effectiveness of your products in meeting them
What are some skills and experiences that will help you build a successful medical marijuana dispensary?
- Knowledge of the medicinal properties of cannabis
- Negotiation skills for contracting the best prices from growers
- Interpersonal skills for communicating with patients about their needs and experiences with your products
- Managerial skills for training and supervising staff
- Accounting skills
- Advertising and promotional skills for competing successfully within the industry
What is the growth potential for a medical marijuana dispensary?
A new report by a research firm revealed that legal cannabis sales rose 17% in 2015 to $5.4 billion and predicted that it would grow another 25% in 2016. Profits for individual dispensaries vary greatly. According to a recent industry survey, almost 60% of owners earn less than $500,000 annually. 27% of respondents reported sales between $100,000 and $250,000, and 15% reported earning less than $100,000. A little over 25% reported revenues of over $1 million, and 15% reported between $500,000 and $1 million.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
How and when to build a team
It’s important to have a team in place before opening your business. At a minimum, the team should include a physician, growers, a knowledgeable and well-trained sales staff, and adequate security personnel. Other team members may include investors, accountants, and additional personnel for tracking inventory, website maintenance and secretarial duties.