Business Overview

Medical marijuana dispensaries legally purchase marijuana from vendors and sell it to physician-approved patients. Dispensaries have a physician on the board of directors to ensure that patient treatment adheres to standard accepted practices. They also have highly trained staff who are continually educated about the many different strains and forms of cannabis and their medicinal purposes. Those forms include vapor, tinctures, balms, oils, juices, and edibles. A medical marijuana dispensary provides patients with an alternative to pain-killers and other drugs that can have harmful side effects when used long-term.

Who is this business right for?

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.

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 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.

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.

Getting Started

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 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 steps to start a medical marijuana dispensary?

Once you're ready to start your medical marijuana dispensary, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:

STEP 1: Plan your Business

A clear plan is essential for success as an entrepreneur. A few important topics to consider are:

  • What are the initial costs?
  • Who is your target market?
  • How long it will take you to break even?
  • What will you name your business?

Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.

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STEP 2. Form a legal entity

Establishing a legal business entity such as an LLC prevents you from being personally liable if your security guard company is sued.

STEP 3. Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

STEP 4. Open a business bank account

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 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.

STEP 7. Get Business Insurance

Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.

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.

STEP 9. Establish your Web Presence

A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.

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Select your state below for an in-depth guide on completing each of these steps in your home state.

Where can I 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.

Growing Your Business

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.

Recommended: Get started with local advertising for your business with a $300 credit from Yelp.

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.

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.

Legal Considerations

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 .

Maintain Personal Asset Protection

Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.

Two of the simplest steps that will protect your business, and yourself, are to:

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.

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.
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To learn more about maintaining your LLC's corporate veil, read our guide and protect your personal assets.

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.

Earning Potential

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.

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

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.

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