How to Start a Recreational Marijuana Dispensary

A recreational marijuana dispensary business offers marijuana in various forms to the general public within state guidelines. Legal recreational marijuana businesses were unheard of not long ago, but in recent years various states have voted to allow the use of marijuana recreationally for adults 21 years of age and older. As of this writing, Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Washington, and Washington D.C. permit the recreational sale of marijuana.

Recreational dispensaries offer a wide variety of cannabis-based products, including cannabis flowers, edibles, topical salves, concentrates, and more. These businesses also provide knowledgeable advice on using such products so consumers can get the most out of their purchases.

Learn how to start your own Recreational Marijuana Dispensary and whether it is the right fit for you.

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Start a recreational marijuana dispensary by following these 10 steps:

  1. Plan your Recreational Marijuana Dispensary
  2. Form your Recreational Marijuana Dispensary into a Legal Entity
  3. Register your Recreational Marijuana Dispensary for Taxes
  4. Open a Business Bank Account & Credit Card
  5. Set up Accounting for your Recreational Marijuana Dispensary
  6. Get the Necessary Permits & Licenses for your Recreational Marijuana Dispensary
  7. Get Recreational Marijuana Dispensary Insurance
  8. Define your Recreational Marijuana Dispensary Brand
  9. Create your Recreational Marijuana Dispensary Website
  10. Set up your Business Phone System

We have put together this simple guide to starting your recreational marijuana dispensary. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

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:

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is very important. Read our detailed guide on how to name your business. 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.

Want some help naming your recreational marijuana dispensary?

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What are the costs involved in opening a recreational marijuana dispensary?

One of the most surprising aspects of starting a recreational dispensary for many entrepreneurs is the significant capital it requires. Depending on your state’s requirements, just getting your license to sell marijuana could cost tens of thousands of dollars. In Colorado, one of the most well-established recreational states, the application fee for a dispensary can cost as much as $15,000. Dispensary owners report a range of startup costs depending on the state. Some businesses required up to half a million dollars to start – including cultivation, fees, licensing, insurance, retail rental, and more – while others cost as little as $40,000.

What are the ongoing expenses for a recreational marijuana dispensary?

There are quite a few ongoing expenses for a recreational marijuana dispensary. You have to keep your inventory stocked, maintain legal compliance, and pay your employees. You should expect things to cost more in general for your business because of its unique nature. For example, not all commercial property owners want to rent retail space to dispensaries due to legal risks. Those that do are likely to charge you more for rent. You can’t use a standard point-of-sale (POS) system like other retail establishments because you need to track all of your sales according to state regulations. That means your specialized POS system may cost several thousand dollars to use each month. Exactly how much your expenses will be can vary greatly depending on the size of your operation and your local laws.

Who is the target market?

Depending on how familiar you are with marijuana, you may be surprised to learn just how many people are willing to purchase it. Young, old, and everyone in between can be found at recreational dispensaries. Some use it for recreation. Others use it for medical issues. What they all have in common is their appreciation of having a legal means to get what they need. If your community allows recreational sales, you will likely have plenty of customers to keep you busy.

How does a recreational marijuana dispensary make money?

A recreational dispensary makes money by selling cannabis products to the public. The number of cannabis products offered by dispensaries just keeps growing. Product manufacturers usually have well-established sales teams, so it is only a matter of contacting those teams to find plenty of options for stocking your dispensary.

How much can you charge customers?

While dispensaries may offer sales periodically, the cost of cannabis products is relatively consistent from dispensary to dispensary in a given area. Taxes make up a significant portion of the cost. For example, in Washington, there is a 37% sales tax on cannabis products. How much you charge a customer will depend on what they buy. Cannabis flower may run from $7-$20 a gram. Edibles may range from $10-$50.

How much profit can a recreational marijuana dispensary make?

Dispensary owners can make a solid profit depending on their location and the size of their business. Small dispensaries report earning between $100,000 and $250,000 from sales, while mid-sized dispensaries report earning $500,000 or less. However, more successful dispensaries report sales as high as $10 million.

How can you make your business more profitable?

If you do things right, you should be able to build a profitable recreational marijuana dispensary business. Good customer service and the right location can steadily increase your customer base and make your business more profitable. Probably the most important factor in profitability, however, may be counterintuitive. Invest in your legal compliance and tax compliance. Hire a lawyer and a CPA and have them ensure that your business is always following the rules. Failing to follow the rules can lead to substantial fees and possibly the end of your business.

Want a more guided approach? Access TRUiC's free Small Business Startup Guide - a step-by-step course for turning your business idea into reality. Get started today!

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your recreational marijuana dispensary is sued.

Form Your LLC

Read our Guide to Form Your Own LLC

Have a Professional Service Form your LLC for You

Two such reliable services:

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

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 through the IRS website. If you would like to learn more about EINs, read our article, What is an EIN?

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.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

  • Separates your personal assets from your company's assets, which is necessary for personal asset protection.
  • Makes accounting and tax filing easier.

Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.

Get a business credit card

Getting a business credit card helps you:

  • Separate personal and business expenses by putting your business' expenses all in one place.
  • Build your company's credit history, which can be useful to raise money later on.

Recommended: Apply for an easy approval business credit card from BILL and build your business credit quickly.

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.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

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

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.

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.

Recommended: Get a logo using Truic's free logo Generator no email or sign up required, or use a Premium Logo Maker.

If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.

How to promote & market a recreational marijuana dispensary

The laws concerning marijuana marketing can vary by state. Depending on the rules in your area, you may purchase billboard advertisements, major newspaper advertisements, independent local newspaper advertisements, or online ads. Many dispensaries offer customer loyalty programs with coupons and other incentives in exchange for contact information like phone numbers and email addresses. Just be sure to verify what the laws are for marketing your products before you purchase any advertising.

How to keep customers coming back

If you are fortunate enough to be the only recreational dispensary in your area, you may have no trouble keeping customers coming back. Of course, it’s best to plan ahead and develop customer loyalty now, even if your sales are strong. Sales and other promotions are nice ways to bring customers back, especially if you can offer them through an app or other customer loyalty program. It’s also helpful to offer a clean, comfortable, and friendly shopping experience. The more respectable you can make your store in appearance and customer service, the better you will stand out from the competition.

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.

Recommended: Get started today using our recommended website builder or check out our review of the Best Website Builders.

Other popular website builders are: WordPress, WIX, Weebly, Squarespace, and Shopify.

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. Check out our review of the Best Business Phone Systems 2023 to find the best phone service for your small business.

Recommended Business Phone Service: is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.

Is this Business Right For You?

Operating a recreational marijuana dispensary is not for the faint of heart. Marijuana is still illegal on the federal level, which means that there is always the possibility that the federal government could come in and shut you down. There are numerous legal hoops to jump through to comply with state laws. But if you are passionate about offering the community products that you believe in and are willing to do the hard work to establish yourself, you may be a perfect fit for the role of dispensary owner.

Want to know if you are cut out to be an entrepreneur?

Take our Entrepreneurship Quiz to find out!

Entrepreneurship Quiz

What happens during a typical day at a recreational marijuana dispensary?

A typical day at a recreational dispensary includes ordering new products, stocking display cases, answering customer questions, making sales, and then cleaning up after closing and preparing for the next business day. All of these tasks are similar to many other retail businesses. However, as the owner of a recreational dispensary, you will also need to keep track of current and upcoming laws and maintain vigilance to ensure you are always in compliance with those laws. You will also need to keep meticulous books to ensure you are meeting your tax obligations and maintaining any necessary funding – because you cannot access traditional funding when selling marijuana.

What are some skills and experiences that will help you build a successful recreational marijuana dispensary?

Recreational dispensaries are retail shops at their heart, which means that certain skills and experiences – customer service, inventory management, bookkeeping – will serve you well. But you don’t have to have retail experience to be successful. Marijuana dispensary owners come from a variety of backgrounds. Most share some specific traits that help them establish their businesses, like persistence, attention to detail, and patience. You are entering a new industry governed by recent legislation that is illegal on a federal level. You want to be certain you are following the rules at all times because failing to do so could put an end to your business quickly.

What is the growth potential for a recreational marijuana dispensary?

The growth potential for recreational marijuana dispensary businesses is substantial. There is already a well-established market for cannabis products, and as those products are made legal, the potential market only grows. For businesses that can successfully navigate the complex startup challenges involved in recreational cannabis sales, there is considerable upside potential in the future. According to Marijuana Business Daily, US retail marijuana sales are projected to rise by 40% in 2020 alone.

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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.

Learn from other business owners

Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.

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:

  • Funding
  • Events
  • Guides
  • Support

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.

What are some insider tips for jump starting a recreational marijuana dispensary?

Starting a recreational dispensary is hard work, but you probably already know that. The key is to pay attention to every detail and make certain you are covering all of your bases. Hire a lawyer and learn the laws inside and out. Be prepared to get creative about funding because banks will not help. Hire a CPA and pay your taxes – which will probably be much higher than you want them to be. If you can follow all of the rules and tread carefully, you can take advantage of a booming industry and likely earn significant profits.

One important thing to remember is that laws on recreational sales can vary considerably from region to region – so don’t assume what is legal in one location will be legal in another. Licensing can also be quite different in various regions. For example, Colorado legalized recreational cannabis sales in 2014, while Michigan took another five years to pass legislation. The newer the laws, the more difficult it may be to navigate the licensing process.

How and when to build a team

Running a recreational marijuana dispensary is not a one-person show. There is simply too much work to be done to do it all on your own. You will want to factor in hiring a small team to help you run your dispensary when developing your business plan. Your startup cost estimates should include enough employees to keep the shop open during business hours while you take care of behind the scenes tasks. Because you are running a cash business – since banks won’t work with dispensaries due to federal regulations – you will need to do everything in-person to pay bills, so you will often be busy while your employees serve customers.

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