How to Open a Dispensary

So you're planning to open a dispensary? Congratulations!

Cannabis is now legal in 40+ states, including medical marijuana only, and both medical and recreational use. And 2022 retail cannabis sales topped $30 billion. This means there’s a huge opportunity to join the green rush as legalization progresses, but it comes with unique challenges.

This guide is designed to help prospective dispensary owners understand how to open a dispensary, including key elements like real estate, creating a business plan, the application process, startup financing, inventory management, state regulations, technology needs, and staffing.

Start reading from the top or jump to a section using the table of contents on the left.

Plan to open a dispensary

The research and planning phase is the first, and perhaps most important, part of your journey to cannabis business ownership. In this section, we’ll discuss your business plan, selecting a location, cannabis capital financing, and licensing.

Dispensary license

Without an approved state license application, you cannot open a dispensary. Period.

Every state and municipality is different in how (and when) they allow business owners to apply for a marijuana retail license, the license application process, and license fees. Most states require annual license renewals with a corresponding renewal fee. Reference your state's cannabis laws here or check with your state cannabis agency to find those details.

Be aware, in some states, it’s incredibly competitive and you may not get a license. This is perhaps the biggest initial hurdle for aspiring dispensary owners.

Dispensary business plan

A business plan is important for all entrepreneurs, regardless of industry or business type. But it’s crucially important for dispensary owners.

Your dispensary business plan is your roadmap; it’s a document that outlines a business’s future objectives and strategies for achieving them. It forces you to think through:

• What your business is and does

• Who is in charge and what their roles are

• How you will build the business and get customers

• How you’ll manage your money

Simply put, a business plan helps you manage your cannabis business more effectively and with a plan, not whims or reactions. This is vital in the highly-regulated marijuana industry.

Real estate

Location is one of the key factors for dispensary success. Consider population, tourism, zoning, traffic patterns, parking, accessibility, demographics, and the actual size and layout of the building.

Will you buy real estate or lease?

Be sure to check state and local regulations before securing real estate. Most states have requirements about where your dispensary business can be located.

Capital financing and startup funding

One of the most discussed topics in the cannabis industry is money. And right now, there’s not much of it.

Before you even start dreaming of opening a dispensary, you need to have capital. Whether you have the startup costs saved, have access to individuals to fund your venture, or have a relationship with local banks or credit unions in legal markets, this is likely the barrier for most entrepreneurs looking to enter the industry.

How much does it cost to open a dispensary?

This is everyone’s favorite question, but unfortunately, it isn’t that clear-cut.

The cost of opening a dispensary can be broken out into startup costs (including real estate costs), ongoing or operating costs, and staffing costs.

All of these categories can vary dramatically based on state, location, size, and the complexity of your operation.

Common dispensary cost estimates range from $150K to $2M.

Let’s try to get a closer estimate. For this example, we’ll assume you’re simply opening a single cannabis retail store. One dispensary in a location with average real estate, living, and salary expectations.

Here’s what you can roughly expect:

Licensing and application fees: $5,000*

• Includes the initial fees, but doesn’t take into account annual renewal fees.

Real estate costs: $125,000

• Includes annual rent or mortgage premiums, plus upfront design costs. This number could be significantly larger for full renovations. Year two costs will be less.

Employee salaries: $300,000 per year

• Includes six employees at an average of $20/hour, plus overtime, benefits, etc.

Professional fees and services: $50,000

• Includes legal, financial, insurance policies, and other professionals to help get your business off the ground. Some of these costs will be recurring.

Security, hardware and software: $50,000

• Includes your security system, all hardware like computers, TVs, printers, cash registers, etc., and all cannabis dispensary software. After your initial investment, plan for $2K/month in recurring software expenses.

Marketing costs: $100,000 per year

• Includes one full-time marketing staff person (or agency costs), plus website, ads, printing, etc. to promote your business.

Cannabis products: $1,500 per pound

• Includes all the products, like flower, edibles, tinctures, prerolls, etc. you’ll need to open your doors.

Grand total = $750,000 – $1,000,000**

*Application fees range from low ($250 in Washington) to exorbitant ($30,000 in Illinois), and this is just to apply for a license. You’ll also have permitting and licensing fees, which also vary widely.

**Disclaimer: This is a very rough estimate of the upfront and first-year costs of opening a dispensary. It is to be used for informational and illustrative purposes only as every market, location, and business will have unique startup costs.

Note: Many states have rolled out social equity programs to ease the burden of entry for those impacted by the failed War on Drugs. These programs do help decrease the initial liquid assets needed to start a cannabis business. Reference The Complete Guide to Social Equity Programs for Dispensaries to find the right program for you.

Keep your dispensary compliant: State reporting

Every state with legal cannabis sales has an official seed-to-sale software tracking provider.

The two key players are Metrc and BioTrack, though some states have opted to forego a track-and-trace system.

Metrc (Marijuana Enforcement Tracking Reporting Compliance) is a cannabis seed-to-sale tracking system developed by Franwell.

States currently using Metrc include: Alabama, Alaska, California, Colorado, Washington, D.C., Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Jersey, Ohio, Oklahoma, Oregon, Rhode Island, South Dakota, and West Virginia.

BioTrackTHC is a cannabis and hemp traceability system for tracking and reporting currently used in Arkansas, Connecticut, Delaware, Florida, Hawaii, Illinois, New Hampshire, New Mexico, New York, North Dakota, and Virginia.

Leaf Data Systems | Powered by MJ Freeway is a seed-to-sale cannabis tracking solution currently used in Pennsylvania, Utah, and Washington.

Choose the right layout for your cannabis dispensary

Layout is more than just the physical design of your cannabis store. It’s the experience your customers have while shopping.

The challenge is balancing a secure store inventory (where it’s easy to track, audit, count, and fill orders) with a beautiful layout and experience.

As a new dispensary business, you may benefit from hiring interior designers and architects familiar with the cannabis industry. But here are some things to consider about your layout and design:

• Flexibility: Can you add a terminal if needed on a busy day? Or is your store small and limited?

• Growth: Given your space, do you have room for growth? Take the time to brainstorm about the future and how your current space could morph to handle your business as it grows or market as it changes.

• Future recreational opportunity: The current trend is for medical marijuana to be legalized first, followed by recreational after a couple years. Trends show that this dramatically increases sales, but may mean changing how your store looks or operates to handle both med and rec. Some dispensaries split the store in half, operating with separate licenses, separate tags, separate inventory, etc.

4 common dispensary layout models

There are four common ways to organize a cannabis dispensary. The option you choose depends on the workflow you’re looking for and the type of experience you want to create for customers. Some state laws mandate how you store and display your products, so make sure you understand your regulations before choosing a layout.

Also consider your potential customers. Different customer types have different consumption preferences (for example, medical patients often prefer higher CBD and methods that are easy to consume versus connoisseurs often have an affinity toward flower or concentrates).

Finally, consider whether you’re doing pre-packaged flower or deli style (where you weigh out with every transaction). All these considerations play a role in whether you choose the Bank model, Pharmacy model, Mobile model, or Kiosk model.

1. Bank model

This is the most traditional layout for medical cannabis dispensaries.

A customer checks in, waits in the waiting room, enters the secure room, then works with a budtender to complete the sale.

2. Pharmacy model

This is similar to the bank model in that customers enter a waiting room, go through the secure entrance, and work with a budtender at a terminal.

But after the transaction, instead of giving you the product, they give you a receipt (and maybe labels) that you take to the inventory control room.

3. Mobile model

In this model, the customer enters the store, checks in, and then walks around the store where products are displayed along walls and in secure glass cases. Sales reps (or budtenders) are mobile, often carrying a tablet to record the order before walking over to a terminal to fulfill the order.

The sales associate may grab live product from secure cases, load it into a basket, and take it to a terminal to prepare your order.

4. Kiosk model

In this model, you check in and instead of walking to a terminal or being greeted, you go to a kiosk, where you can enter your own order/create your own basket, which is sent to a terminal where a budtender can fulfill the order.

As the industry continues to mature, we will start seeing more hybrid approaches and innovation around dispensary layouts. But it’s helpful as new dispensary owners to understand these models and your options as you build out your store.

Source, manage, and audit inventory

To stay compliant and competitive in the marijuana industry, you need to carry products your customers want and excel at inventory management.

Source and intake cannabis products

Accepting your first supply of cannabis products is an exciting day for new cannabis businesses. But first you have to source those products.

If you’re a vertically-integrated marijuana business, you’ll likely be selling your own products. But you’ll need to make sure those products are grown, manufactured and extracted (if applicable), and transported in time for your retail store’s opening. Very few stores exclusively carry their own strains and products, so most dispensary businesses need to source at least some products.

If you’re ordering cannabis products from other licensed growers and suppliers, you’ll need to start the sourcing and purchasing process early enough to guarantee delivery on time (but not too early that those products start expiring).

Here’s a few tips on sourcing products for your store:

• Consider your product mix: How much flower vs. concentrates vs. edibles vs. non-ingestibles will you carry in your store? Will you carry less-popular items like tinctures, salves, or suppositories? What products will your customer base prefer (hint: you won’t really know this until you’ve been open for a bit, but you can make educated guesses to get you started).

• Consider margins: Which products make you the most money? The old adage of buy low, sell high applies to cannabis businesses too, where margins are already slim due to the extra costs of doing business, like exorbitant taxes and 280E.

• Consider your sources (literally): Find wholesale growers with a great reputation, high-quality products, reliable delivery, and fair prices. Verify that they carry the strains you want, can produce enough to supply your needs, and are in good standing with their licenses.

• Buy in bulk when possible: Purchasing larger quantities will save you a lot on overhead. Keep in mind that you don’t want to buy too much product and risk losing valuable inventory to expiration.

Once your products arrive, you must “intake” them into your store in a specific way. Before you can bring physical inventory into your store, you must receive and review a manifest. The manifest is created by the supplier — the requirements are the same whether the supplier is you or another company.

The manifest includes the harvest, weight, unit of measure, cost, etc. of the product.

You are responsible for reviewing the manifest, and if everything is correct, accepting it. When the package comes in, you'll physically inspect the package, making sure it’s exactly as ordered.

You then accept it in Metrc, which means you’re telling Metrc that you are in legal possession of this inventory.

Now you can stock your shelves and sell the product.

5 tips for managing your inventory

1. Prioritize compliance: Compliance is the single biggest factor for dispensaries, so you have to get this right. Make sure you have an easy way to audit your inventory and you build a culture of compliance with your team.

2. Standardize product naming conventions: To have good data, you need to have a naming convention to use across your systems. Make sure you have a global product catalog — and same naming convention — across all locations. Here’s a post on standardizing naming conventions to explain this further.

3. Create layout and inventory compatibility: As you compare the four layout options described earlier, consider how compatible each is with your inventory. If all your flower is in bulk and weighed out rather than pre-portioned, do you have a layout to support or will you have bottlenecks? If you have many options for edibles, concentrates and topicals, do you have enough space for them all in your store design?

4. Develop standard operating procedures: Make sure you have really strong dispensary SOPs and store processes. Have everything written down, and review and update them regularly to ensure everyone understands the process for everything. For the sake of inventory management and store compliance, document rules and then actually follow them.

5. Incorporate integrations: If you want to offer digital menus, online ordering, delivery, etc. through services like Weedmaps or Leafly, make sure you understand how that works with your inventory. Look for integrations so your products showing online are based on the inventory you actually have, without having to do duplicate work.

Best practices for auditing your inventory

Auditing your inventory is critical to your retail operation. Here are a few best practices for developing and perfecting your audit processes.

Audit every single product in your store weekly. Some stores do every product daily, which may be overkill. Others do everything monthly, which isn’t nearly frequently enough. The key is to be consistent with when you audit and how.

Most successful dispensaries approach their weekly audits in one of two ways:

• Close your store and keep all your employees for 6+ hours every week to tag-team the auditing process.

• Break it up into easier chunks, with 2-3 people responsible for completing the audit of each chunk every week. For example, Mondays you audit edibles, Tuesdays you do flower, Wednesdays are concentrates, etc. Or you could split up by front-of-house and back-of-house or by room.

Develop processes to ensure auditing is done the same way every week. The amount of time spent on auditing is amazing, so make sure you have a staff member either with the sole responsibility of auditing/inventory, or allotting several hours to manage inventory in addition to other roles.

Hire and retain qualified dispensary employees

The success of your medical marijuana dispensary or recreational retail store hinges on your team. It’s not uncommon to have turnover in the first few months after opening your dispensary.

Ideally you’ll have the following dispensary staff/organization:

• Budtenders/sales associates: These people are the face of your dispensary. This is the least appreciated but most necessary role for the success of your business. Make sure budtenders have a love of cannabis and helping people, but also are educated in state regulations and compliance. The average tenure of budtenders is four months, so it’s important to consider employee retention.

• General manager: This person oversees the daily operations of your store, hires and trains staff, and ensures state reporting compliance.

• Greeter/receptionist: This person is the first impression of your dispensary, checking IDs, verifying age to prevent minors from shopping, and welcoming customers.

• Security: This person is there to protect your dispensary, your staff and your customers, and may be the same person as the greeter role. Many people aren’t used to seeing law enforcement or security in stores, so make sure this person is friendly and warm.

• Inventory manager: Inventory is so important because of the regulations around cannabis, that this is likely a role of its own. This person is responsible for auditing and inventory management.

• Compliance manager: This person ensures all regulations are followed. They’ll be paying attention to regulations and making sure the staff are trained and your operation is in compliance, even as things change.

• Purchasing/vendor manager: You’ll have multiple suppliers, so it helps to have someone responsible for vendor contracts and negotiations, inventory from vendors, etc. Sometimes this is its own role, or sometimes managed by the store manager or inventory manager.

• Software/IT manager: If you don’t understand software, find someone who does, even if it’s a consultant. This is a digital business, so you need to have the know-how to fix errors, like printers, hardware, integrations, etc., especially when you first open your marijuana dispensary.

The common theme for all roles is compliance. Every member of your dispensary team needs to understand marijuana laws, like purchase limits, and the importance of compliance. Cannabis is a highly regulated industry and failing to abide by these rules will put your business and livelihood at stake.

Be sure to create employee management SOPs to ensure you're hiring, training, onboarding, reviewing, promoting, and managing your employees effectively and consistently.

The key to dispensary employee retention is treating them well. And paying fairly. As the business owner, you should also consider benefits — most dispensaries at least offer medical insurance — but others are paying for dental, vision, and 401k or stock options.

Other benefits you could offer include bonuses, paid parking, commuter benefits, employee discounts, paid vacation, paid training opportunities, etc. This is a career for many people and benefits are part of that. If your staff feel like they are cared for, compensated appropriately, and have opportunities for growth, they will stick around.

How much to pay dispensary employees

Here are average payscales for budtenders, general managers, and compliance professionals provided by Vangst, a cannabis recruiting platform.

You’ll notice the pay scales vary on location, or high growth areas, but also on experience. The challenge is in finding experienced people when you open in a new market. If you can find someone who moved to your state with cannabis retail experience, hire them.

Choose your network, hardware, and cannabis tech stack

Having a smart cannabis business plan, beautiful store, and great employees is important, but when opening your dispensary, you also need to consider your network, hardware, security, and technology partners.

While all business owners have to do this, the legal and compliance concerns within the cannabis industry makes these choices more complicated. Making the right decisions here can help mitigate risk for your business.

Network

It’s common to assume your wifi will always work, but the reality is an outage could be catastrophic for our business. The first step is to make sure you get the best coverage available in your area and hardline as many components as possible, like printers. That way if your wifi goes down, you can still print labels.

Pro tip: Be sure to document operating procedures in case of an electrical or wifi outage at your dispensary. Use the outage SOP template for help.

Hardware

Just like any business, there are many upfront costs you’ll incur. It may be tempting to cut corners or delay expenses until your dispensary is up and running, but hardware is definitely not one of those areas to compromise.

Make sure your computers have solid RAM, which will ensure a much faster transaction. Read our dispensary hardware recommendations for more information on choosing the right hardware for your store.

If you're planning to take debit card payments, which we suggest you do because you can increase cart size by up to 30%, you'll also need to think about payment terminals and dispensary payment processing solutions. The guide to cannabis payments is a great place to start learning about the status of non-cash payments in cannabis.

Also, think about aesthetics. If you build a beautiful store, make sure your hardware aligns with that visually. Also make sure you choose a POS that works with the hardware you want — some cannabis POS software requires specific hardware, so switching down the line could mean huge capital expenses or you could limit the software you can use if you choose the hardware first.

Printing

Printing seems like a simple consideration — we all know how to print. But for retail cannabis businesses, printing a label or receipt is highly specific and comes with a list of requirements.

Every unit you sell has its own label. It’s best to have a dedicated space to label all products, both as new product packages come into the store and as you sell cannabis products to customers. And also keep a separate printer for every terminal so you decrease risk in labeling the wrong product. Don’t skimp on this.

Security systems

Cannabis stores carry more risk than traditional small businesses for two primary reasons: dispensaries are still predominantly cash businesses and marijuana is a stealable product. Break-ins and internal theft issues still plague many dispensaries.

Because of this, surveillance and security systems are an important part of your technology stack (and some states have requirements around security).

Check out this resource, The Complete Guide to Dispensary Security, to learn everything you need to know about protecting your cannabis dispensary, including physical security (covering internal security, external security, and product security), security staffing, and cybersecurity strategies.

Tech stack

This refers to all the different dispensary software you’ll be using. You’ll have a POS specific to the cannabis industry, that’s a given. But what other tech do you want in your store? Digital menus? Self-service dispensary kiosks? Loyalty programs? Order ahead or delivery? Ecommerce? Digital payment processors?

These other capabilities can add to the aesthetic of your store, build your brand/image, increase customer experience, and can build loyalty and revenues. There are many cannabis software options to consider. Make sure they all work with your hardware and point of sale system.

Choose a cannabis retail POS system for your dispensary

As you enter this part of the process of opening a new dispensary, be honest with yourself: How well do you understand technology?

If you don’t, find a trusted advisor to help you choose the tech stack and partners to fit your cannabis business needs. Here are 10 tips for choosing marijuana retail software.

What to look for in a cannabis POS:

1. State compliance tracking: Metrc (and the other state reporting systems) is why software is so important. Dispensary staff used to have to record every sale and manually deduct inventory. Now, having an API integration that manages this all seamlessly is paramount to save you time and provide peace of mind that you’re staying compliant.

2. Hardware compatibility: As mentioned above, make sure the software and hardware you choose are compatible. Pick a cloud-based software that doesn’t have hardware requirements so that you don’t incur any additional hardware costs or have to change hardware if you change point of sale later.

3. Customer support: Your ability to get up and running quickly is important, but getting your questions answered long-term is just as necessary. As you demo different software, ask about the ongoing support process and level of support you’ll receive throughout your time with your providers.

4. Ease of use: Software that fuels your medical marijuana or adult-use retail stores must be easy and intuitive. Staff need to be able to learn it quickly. As you demo different POS systems, pay attention to how the system functions and whether you think it’ll make your staff more productive.

5. Inventory management: Strong inventory capabilities will keep you compliant and competitive. Similarly, look for software that makes auditing easy, like having a mobile app. The right software will save you time and money in the long run.

6. Built-in compliance: Software isn’t just important for compliance related to state reporting (like Metrc), it also should help you stay compliant with state marijuana laws, such as purchase limits. Make sure the software you choose has built in safeguards that address your market needs.

7. Discrepancy reporting: Your Metrc inventory, physical inventory, and point of sale inventory should always be aligned. If there is a discrepancy, you need to know about it and how to resolve it. Your software should include built-in tools to help you identify and resolve inventory discrepancies.

8. Activity tracking: In an industry with more loss and theft than the average, it’s important that you can see who has done what activity at your store. This allows you to see what employee made what actions, and when those actions occurred, like making a sale, opening a drawer, moving inventory, etc.

9. Open API and integrations: Is the software compatible with other vendors? It’s important to consider integrations, especially if you’re interested in online menus, delivery, loyalty programs or other technology offered by partners.

10. Specialization: Consider the best software for each part of your business. If you have marijuana cultivation facilities, manufacturing facilities, and cannabis retail operations, it’ll be tempting to pick one software for it all. Better visibility is tempting — you can’t deny that — but all software is best at one thing. If you choose one for all, it means you’ll be putting the other two parts of your business at a disadvantage. Instead, look for vendors who integrate seamlessly.

Good luck!

Now that you understand how to plan your business, meet capital requirements, find real estate, get licensed, stay compliant, design your store, source, manage, and audit inventory, hire staff, build out hardware and software, beef up security, and choose a cannabis POS system, you're ready to confidently dive into the exciting world of legal cannabis!

Disclaimer: Flowhub is not in any manner providing legal services or legal advice. You are solely responsible for consulting with legal counsel to ensure your business complies with all applicable laws, and we recommend you do so.