Every new cannabis dispensary faces these obstacles and opportunities.
6 min read
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Running a profitable and legal cannabis dispensary is entirely possible but not at all easy. The regulatory labrynth is tough to navigate, startup costs are usually significant, the taxes are brutal and the competition is fierce. Building a successful cannabis business means understanding, before you even get started, the many ways this industry is unique.
Here are seven facts to recognize before starting a cannabis dispensary in 2019.
1. The market is massive and will only get bigger.
Normal business considerations are very different when you’re working in the legal weed industry.
But past these difficulties is a brand new industry filled with opportunity for entrepreneurs. Specifically, here’s are some statistics about the industry:
Today, there are only eight dispensaries open in Massachusetts, which is predicted to become a $1.8 billion dollar industry. In other words, opening a cannabis dispensary is a more appealing business idea than ever before.
2. Obtaining a license is competitive and costly.
The first step when opening a cannabis dispensary is applying for a business license. This is a complex, expensive and state-specific process (and often city or county specific, too). License costs vary between states but often reach six figures, not including renewal and application fees.
Applying for a license by no means guarantees that you will receive one. Despite high costs, dispensary licenses are hard to come by. Typically, states are concerning about overwhelming the market and roll out licenses gradually.
3. It’s Difficult (but not impossible) to access bank services.
Don’t expect to qualify for a business loan if you’re opening a cannabis dispensary. According to government data, 375 banks and 111 credit unions worldwide offer services to weed businesses. However, this typically means cannabis businesses can open bank accounts, not access loans.
Due to federal laws, banks are still reluctant to provide services to cannabis businesses because they could technically be guilty of money laundering. When they do, the business in question has to share a lot of financial information with them, which requires extra work on both sides.
Though it is possible to get a cannabis bank account, that will in almost all cases be the only role a bank will play in your business. Funding will be entirely up to you.
4. Taxes are very high.
Paying taxes is a hassle no matter the industry but paying cannabis dispensary taxes is another process entirely. For businesses that do not have bank accounts, this means paying your taxes in cash, which is a hassle for you and the IRS.
And whether or not you obtain a bank account for your cannabis dispensary, you’ll have to pay higher taxes than virtually any other industry. This is a result of federal Tax Code 280E. It prevents all plant-touching businesses — companies that deal directly with the plant, rather than with accessories and ancillary services — from deducting business expenses and using tax credits. Equipment, rent, insurance, advertising… cannabis dispensaries cannot deduct any of these expenses. This brings the average taxes paid by a weed business to around 70 percent.
5. Well trained employees will distinguish your cannabis dispensary.
Very few people working in legal weed has any formal education in cannabis, and since the industry is so young few prospective employees have any experience at all. For employers, this means that it will be difficult to find qualified employees. One study found that dispensary staff is only trained for sales, not for providing medical advice.
But this potential obstacle also presents an opportunity. For many customers, the biggest value in going to a dispensary is learning which products are best suited for a specific condition or effect. There is a demand for weed knowledge. A cannabis dispensary can set itself apart by creating an in-depth training program that sets its employees apart from the rest.
6. Funding will have to be personal or VC.
Because weed businesses do not have access to banking, funding can be a significant hurdle to getting started.
Your first option is to self-fund, but starting a cannabis dispensary is a slow and expensive process. Not only do you have to be able to afford all startup costs, but acquiring a license and permits takes a lot of time. For many businesses, this means paying rent without being able to turn a profit for months, if not years.
There is an increasing number of private investment options opening up. Funding for cannabis businesses can also be found through family, friends or a Series A round. Alternatively, some weed companies seek financial support from cannabis hedge funds, celebrities, business incubators and family offices.
7. Supply chain management is complex.
Starting a legal cannabis dispensary entails following strict laws and health and safety rules. The weed industry is a lot like food and beverages: to legally sell your products, you need strict supply chain management and have to be able to prove that you’re in compliance with all regulations. For that reason, the cannabis industry is redefining supply chain management.
But unlike the food and beverages industry, the industry doesn’t have access to a workforce specifically trained for it yet. And protocol for health and safety varies from state to state and is subject to change.
Sure, starting a cannabis dispensary is a big undertaking, but a potentially lucrative one. Make no mistake: Starting a cannabis dispensary is a complicated, expensive and arduous process. That isn’t to say that it can’t be a rewarding and lucrative venture.
In 2019, the market is poised to see further growth with New York cannabis legalization among others and the maturation of older markets.
As a result, demand for well-run cannabis dispensaries that can stay in compliance with laws and regulations will only increase.