How to Start a Recreational Marijuana Dispensary

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:

• What will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

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.

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.

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.

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.

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!

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.

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.

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.

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.

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.