By Cecelia May Thorn
Want to start a dispensary? Here’s a fool-proof guide for starting one — or not starting one, if this article scares you off.
If you ask successful dispensary owners for advice, they’ll all agree: Starting a dispensary isn’t easy. And it carries huge risks.
“You should expect that everything will be chaotic for a few years,” says Evan Anderson, owner of 14er Holistics, a dispensary which has been thriving in Boulder, Colorado, for over a decade. “And it might all go away tomorrow.”
You also have to acknowledge that everything you’re about to do is federally illegal.
Dispensary owners and staff are currently protected by the Rohrbacher-Farr Amendment, which stipulates that federal funds cannot be used to prosecute cannabis entrepreneurs operating in accordance with state laws.
But a few weeks ago (right before the Coronavirus pandemic started taking over the airwaves), theTrump administration released a new budget proposal. Notably missing? The Rohrbacher-Farr Amendment, which had been in all federal budget plans for years.
Across the country, cannabis business owners furrowed their brows.
So before going any further, check in with yourself: Are you really ready for this? Starting a dispensary will be a roller-coaster. Steel your nerves for a bumpy ride ahead.
If you really want to open a dispensary (and stay in business), you must become obsessed with legal and regulatory compliance.
“Plan to be in the most regulated compliance industry in the world,” Anderson advises.
Even if you’re a seasoned entrepreneur, and you think compliance is a breeze, beware: the cannabis industry poses unique challenges. And you really can’t go it alone. You’ll need advice from experts who know this industry.
Anderson suggests finding your lawyers and accountants early on. The license application process is too complicated, he explains, for someone who doesn’t know the intricacies of cannabis law at the state and local level.
The tax laws alone will present insurmountable hurdles and headaches.
“It’s not something an average random person can suddenly get involved in,” he says.
For more about the license application process — which can be highly competitive or nearly impossible, depending on your state — check out our guide to starting a marijuana business.
Where will your dispensary be located? Starting a dispensary is a vastly different process in different states.
Obviously, you need to choose a state where marijuana dispensaries are legal. Today, 33 states allow medical marijuana dispensaries; 11 of them allow “recreational” (or “adult-use”) dispensaries as well.
If you try to start a dispensary in a state where medical marijuana is illegal (like Texas, South Dakota, or Idaho), you probably won’t get very far.
If you choose one of the 11 states with both medical and recreational marijuana, you’ll need to decide whether your business will be recreational or medical. Depending on what kind of dispensary you’re starting (and, again, depending on your state), you will face entirely different sets of rules and regulations.
For example, in some states (like New Mexico), dispensaries must be “vertically-integrated.” This means that you can’t own a dispensary without also owning a grow facility (which will supply cannabis for your store), and vice versa.
In other states (like Washington),vertical integration is prohibited: If you own a dispensary, you cannot own a grow facility, and vice versa.
In other states, like Colorado, vertical integration is optional. (When Colorado legalized recreational marijuana, the state phased out its vertical integration requirements, which had been a hallmark of its medical marijuana program.)
If you’re starting a vertically-integrated business, you’ll need to start a cultivation facility as well as a dispensary. This will entail a whole other business plan — and, in most places, a separate location.
As with retail businesses of any kind, location is critical.
It’s not just state laws you’ll need to worry about. Your county or city will have regulations of its own. These can vary wildly, even across one state.
Boulder, Colorado, for example, is a notoriously difficult place to run a dispensary. Thirty miles to the south, however, Denver is significantly easier.
“If you can make it in Boulder, you can make it anywhere,” says Erin Weiland, the Chief Operations Officer of Helping Hands Herbals. Her store has been open in Boulder since 2009, when she was one of the company’s first two hires. (Full disclosure: I was the other one.)
“I know tons of people in Denver who’ve never even had an inspection,” she says.
Most Boulder dispensaries, meanwhile, have faced multiple sting operations, orchestrated by city officials who employ undercover shoppers.
“If you're just governed by the state and one of the M.I.A. municipalities, it’s so much easier,” she explains.
Think you’ve found a location safely outside the purview of a hostile city’s limits? Don’t get too comfortable: a city can “annex” properties beyond its borders.
In 2016, for example, the City of Boulder annexed land in unincorporated Boulder County, just outside the city limits.
Dozens of marijuana business owners fought the annexation — unsuccessfully. Once they were technically inside city limits, they had to change several aspects of their operations to comply with stricter requirements.
“For one thing, we suddenly had to bolt our commercial refrigerators to the floor,” says Karin Lazarus, one of the marijuana business owners affected by the annexation. (She owns Sweet Mary Jane, a licensed manufacturer of cannabis edibles.)
Lazarus, who has also been in the industry for a decade, was accustomed to adapting to regulatory changes on the fly.
Local regulations also limit the potential locations available to cannabis entrepreneurs.
State and local regulations will specify, for example, how close your dispensary can be to schools and daycare facilities. This significantly winnows the number of potential properties available.
When evaluating potential locations, you’ll need to think about parking, foot traffic, curb appeal, buildout, and security requirements, as with any retail business.
But the security requirements will be more onerous for dispensaries than, say, a beauty salon. Most states and local municipalities also have their own security requirements for dispensaries, which are cash-heavy businesses.
You’ll also need to look at the zoning.
If you’re starting a vertically-integrated dispensary, zoning will be much more complicated: Siting a cultivation operation, which usually requires agricultural zoning, is notoriously difficult. (Some real estate brokers specialize in cannabis-compliant properties.)
“It’s like finding a needle in the weedstack,” says Anderson.
You’ll also want to evaluate your potential landlord and neighbors.
These relationships will be critically important — perhaps more so than in most industries.
“In every other industry, you have a right to do business,” says Anderson. “In this one, you have toearn the right to do business, and that starts at a very local level. Start with your next-door neighbor, and go all the way to your governor.”
As an aspiring dispensary owner, the license application will be one of your biggest hurdles. This process will be intense, discouraging, and expensive.
To file your application, you will need to have your location locked down already. (Did we mention that this process is financially risky?)
By this point, most applicants have already hired a team of consultants, who will likely charge you an arm and a leg.
But even if you don’t hire any help, the license application fees alone can cost tens of thousands of dollars. (For more information, refer to our guide to starting a marijuana business.)
At times, you may feel that this process is rigged against you. And, depending where you are, you might be right.
You will need to pass several rounds of inspections, including from multiple officials and agencies within your state and local government.
They will demand you make certain changes. You will have to make them. This will cost you yet more money. Once you’ve made the changes to your buildout, the officials may change their minds.
Are you really ready for this?
Writing a business plan for a dispensary involves all the same elements as any other business plan. You’ll need to cover revenue, products, customers, supplies, employees, marketing, rent, and all other normal business considerations.
But you’ll also need to consider aspects of the business that are unique to the marijuana industry.
Like access to banking services.
Most FDIC-insured banks are still unwilling to work with marijuana businesses. But you can’t store all your money in cash — no matter how many commercial safes you buy. Storing this amount of cash on the premises would be dangerous and impractical.
So you have a few options.
At a traditional bank, you can lie about the nature of your business. This is the route that, until recently, was employed by almost all dispensaries.
If this is your only option, you’ll have to take steps to reduce the marijuana smell on your cash. You’ll need to carefully train any employees who make bank deposits. You’ll need to get your story straight. Then you’ll cross your fingers and hope for the best.
This strategy does not always work. When the bank discovers the ruse, they close the account.
“If we lose a bank, and we have a stack of checks we can’t deposit, that’s a big cash flow problem,” says Lazarus.
The checks can’t be deposited until another bank account is secured.
The whole rigamarole has to be repeated, at yet another unwitting bank. (Most dispensaries have corporate or LLC names that are different from the name they do business under. These LLC names are often intentionally vague.) Then the funds will be available, for now — until the new bank catches on.
Today, a few non-traditional banks and credit unions have opened to serve marijuana businesses. But that doesn’t necessarily mean thatyoucan bank there.
Some dispensary owners say they’ve spent years on waiting lists for these banks.
If you land one of these special bank accounts, some aspects of your business will become easier.
“I can wear my badge in there,” Weiland says, “and I don’t have to lie about everything.”
But the privilege of transparency comes at a cost.
An anonymous source familiar with Partners Credit Union broke it down.
For normal business deposit accounts, they said, businesses will pay .35 percent on total deposits. Marijuana businesses, however, must spend one to two percent of their gross on banking fees. (Verus, another bank that accepts marijuana businesses, also charges high monthly fees.)
Most dispensaries must also pay for someone to come pick up their cash at least once per week. (This person is usually part of a security company with armored vehicles.)
Of course, dispensaries also can’t get traditional business loans. This makes it difficult to access capital — and should be a main consideration in your business plan.
Although federally-insured banks won’t lend to dispensaries, the federal government still definitely wants their tax dollars.
In fact, you’ll have to pay tax rates at a much higher rate than most businesses, thanks to an obscure section of the U.S. Tax Code called Section 280(E). Again, you will need an accountant well-versed in cannabis tax laws.
“You have to be able to be able to modify your plan,” Weiland says, “and throw out just about everything you thought would work.”
Everything in your business plan will probably change. And it will never stop changing.
The state of Colorado, for example, instated a new requirement last January for heavy metals testing in all cannabis products. Due to a lack of standardized lab testing (and a lab logjam generated by the new deadline), the industry was instantly thrown into chaos.
Even the most well-researched business plans hadn’t accounted for this.
“Write the most compliant business plan you can imagine,” Anderson says, “and then plan to refine it a hundred times before you can use it.”
And make sure you’re ready to use the word “compliance” about eighty thousand times.
Because in the marijuana industry, compliance is (almost) everything. if you violate one of the numerous state or local regulations, you’ll face steep fines — or get shut down.
You don’t want to invest in this business, only to have your dispensary shuttered. (Even you’re banking on a rapid exit plan, keep in mind that a history of regulatory infractions will make your business difficult to sell. Many municipalities have a “three strikes, you’re out” policy.)
If this article hasn’t scared you off, you might be ready to start a dispensary. Good luck!
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