Opening a business and doing something you love is the key to success and being happy in life.
Of many industries, if you are a cannabis lover, opening up a dispensary could be the key to your success and happiness in your entrepreneurship life.
There is a massive market behind this industry, and it doesn’t seem like it’s stopping anytime soon.
If you are thinking of opening your dispensary, you are probably aware that there are many costs associated with opening a dispensary.
Considering the costs, you might wonder about the exact numbers and whether it would be worth opening that dispensary.
This article will take a look at the average costs to open a dispensary, factors affecting the costs, and everything around opening a dispensary.
Average Cost to Open a Dispensary
Even though opening a dispensary is quite similar to opening any other business, the regulations might make it way more expensive than you think.
You need to come over the financial hurdle of the regulations, as well, and make sure that your state allows you to open a dispensary.
The average national cost to open a dispensary is between $150,000 to $2 million, including all of the key start-up costs.
| Type | Average Cost |
|---|---|
| Licensing | $5,000-$30,000 |
| Real Estate | $25,000-$100,000 |
| Professional Services | $50,000 |
| Employee | $250,000 |
| Equipment | $25,000 |
| Marketing | $25,000-$100,000 |
| Product | $1,300-$1,500/lb |
| Cash Capital | $150,000 |
Some of these costs, such as licensing, equipment, and part of real estate, are one-off fees. You only have to pay them once before you start operations.
Others will be recurring fees that you have to pay continuously, such as the employee, product, and marketing fees.
However, your decision in the beginning about the marketing budget or the employee numbers will affect how much you will spend on them.
Factors That Affect the Cost of Opening a Dispensary
Not every dispensary has the same type of cost, and the overall costs differ because there are certain factors.
These factors are the major drives of your costs that could put you above or below the average start-up costs. By knowing these, you can make better decisions and economize on the costs.
Legal environment
Marijuana is still not allowed in many states, and some that do allow it might have high fees in licenses and taxes.
Research well about your state and determine if it makes sense to own a dispensary.
How easy is it to enter the market?
Is the market too saturated, and there is too much competition, both as small businesses and as corporations?
It will be extremely hard to enter and succeed in a dispensary market with high competition. Study your competition well and know how you can have a better offer than others.
Size
Just like in any other business, the size of the overall store will affect how much it will cost to start and own the business.
It’s the same with dispensaries as the more size you have, the more employees you will need, and the more inventory you will need to order and pay more rent.
Try to choose an adequate size based on your budget and how much you can pay annually for the recurring fees.
How Much Does a Dispensary License Cost?
The licenses of dispensaries vary quite a lot, both in quantity and also in the amount you need to pay.
Every state has different requirements for licenses, and their fees also change based on these requirements.
For example, Washington’s Dispensary fee is only $250. However, you have to pay $6000 in non-refundable fees in Missouri and Michigan.
Generally, the best average estimate for licensing is about $5,000, which could either cover all the necessary costs of the fees or might not be enough.
Illinois requires you to apply for early approval, which costs $30,000. On the higher end, the highest is $30,000, and the lowest will be about $4,000 to $5,000.
Cheapest State to Open a Dispensary
As we mentioned before, every state has different application fees for the licenses, but the only cost associated with the states is not that.
Each state has a different price tag on the ounce of marijuana, and also they charge different taxes. This is why some states are cheaper to open a dispensary than others.
| State | Application Fee | $ per ounce | Excise tax |
|---|---|---|---|
| Oregon | $250 | 210.75 | 17% |
| Colorado | $5,000 | 241.74 | 15% |
| Michigan | $6,000 | 290 | 10% |
| Alaska | $5,000 | 298 | 20% |
| California | $6,000 | 257 | 15% |
| Massachusetts | $1,500 | 341 | 10.75% |
| Washington | $250 | 232.90 | 37% |
| Vermont | $2,500 | 346 | 14% |
| Nevada | $5,000 | 270 | 15% |
| Maine | $10- 250 | 288 | 10% |
| Arizona | $5,000 | 297 | 16% |
| New Jersey | $400 | 344 | 6.625% |
| New York | $5,000 | 337 | 9% |
Counting in all the costs, such as the application fee, cost per ounce, and the tax taken on the profit and the marijuana, the cheapest state is, by far, Oregon.
They have the cheapest application fee and the price per ounce. The national average for the cost of an ounce is $326,06, which is way lower than in Oregon.
Overall start-up costs in Oregon and Colorado, the two cheapest states to open a dispensary, are also lower than most other states. This allows you to pay less rent and salaries than in other states.
What Licenses and Permits Do You Need to Open a Dispensary?
The exact type of licenses and permits you need will depend on where your dispensary is operating and the type of dispensary.
Some dispensaries choose to also grow and sell their own marijuana, which requires other licenses and permits than classic dispensaries.
There are licenses that are a must to get for any kind of business, whether you are a dispensary or not.
These include business formation, tax ID number, general business license, DBA filing, and sales tax permit.
Anything on top of these licenses and permits will depend on which state you operate in.
Getting Financing for Dispensary
Getting the necessary financing to open your dispensary might be harder than getting a traditional business loan.
That’s because marijuana is still illegal at the federal level, and most banks are not willing to work with marijuana dispensaries.
Even if you can find an institution ready to work with you, the interest rates will probably be higher than the average.
This makes it more expensive to find the financing and open your dispensary.
However, some institutions will work with you, and you can get your loan on different terms and conditions than other businesses.
Common financing options for dispensaries are;
- Real estate loan
- Inventory financing loan
- Term loan
You can get these types of cannabis dispensary loans from banks, private lenders, online lenders, or find angel investors willing to invest in your business.
There are also some companies that can get you cannabis banking solutions and close the gap between you and the bank.
How Much Does a Dispensary Make?
The revenue and profit numbers of dispensaries vary quite a lot based on several factors like location, size of the dispensary, and total expenses.
That’s why it’s hard to come up with a concrete number as to how much a dispensary makes. On average, dispensaries typically make anywhere between $1 million to $4 million in annual revenue.
This is how we can calculate how much a dispensary owner makes– If the owner of the dispensary owns 100% of the business, they can expect to pocket anywhere between $100,000 to $1.2 million in annual profit.
With simple math, we see that the average profit margin of dispensaries varies between 10% to 30%. However, depending on their costs, some dispensaries might have higher or lower profit margins.
Conclusion
Even though marijuana is legal in some states, it is still not legal on the federal level, and it makes it harder to open dispensaries even in legal states.
The overall cost to open a dispensary could be anywhere between $150,000 to $2 million.
The biggest factors affecting the cost of a dispensary are the application fees, taxes, and the cost per ounce of marijuana.
As of 2023, Oregon is the cheapest state to open a dispensary. Dispensaries typically make anywhere between $1 million to $4 million and pocket between $100,000 to $1.2 million in annual profit.
Looking at these numbers, the profit margin, and the surrounding details, it could be extremely profitable to open a dispensary if you can get the necessary financing.
FAQs
Can I open a dispensary in every state?
Not every state allows marijuana businesses because marijuana is not legal in every state.
Currently, only 13 states allow marijuana use, and you can open a dispensary in only these 13 states in the United States.
Can everyone open a dispensary?
If one satisfies the licenses and permit requirements, anyone can open a dispensary so long as you have the money and is legally allowed to run a business. Every state’s requirements differ, so you must contact your state to learn more about it.
How much can I expect to make with a dispensary?
The average profit number for a dispensary is between $100,000 to $1.2 million, depending on your location, size of the store, and overall expenses. Generally, the profit margin from the revenue is about 10% to 30%.
Sources
https://www.embroker.com/blog/how-to-get-cannabis-license/
Amit Gupta is an experienced expert in digital marketing and co-founder of DrFranchises. With more than 11 years of knowledge in franchise digital marketing, SEO, email marketing, and social media marketing, Amit has helped many brands achieve incredible success online. As a passionate entrepreneur and owner of 7 franchises, he continues to study franchise models, looking at costs, revenue, and profitability to guide brands toward profitable growth. When he’s not working on digital marketing, Amit enjoys spending time playing with his beloved dog.