Start a recreational marijuana dispensary by following these 9 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 recreational 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 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.
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.
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 recreational 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.
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.
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 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.
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.
Start A Recreational 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?
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!
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.
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.
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.