Estimating Dispensary Cost

In terms of total cost, while no two dispensaries are created equal, you’re probably not going to be able to realistically make a go of things in any location with less than $150k, and in states with extensive capital requirements you could easily need upwards of $2m or more.

Additionally, keep in mind that as a dispensary you are likely going to pay a significant premium over regular market rate for all sorts of products and services. Sometimes this is because some entities don’t want to be involved with those in the cannabis industry at all, such as financial institutions. Other times this is because servicing your dispensary will require specialized knowledge above and beyond what a normal professional might know; for example, you’ll want legal and financial advisors that have cannabis-specific expertise.

Now let’s take a look at the major categories of dispensary startup costs for the average dispensary, along with some very basic estimates - 9 key cost elements of a successful cannabis retail business plan.

How Much Does it Cost to Open a Dispensary:

1. Application & Dispensary Licensing Costs: $5,000 - $30,000

For application fees, $5,000 is a good general estimate, though these fees can vary drastically from state to state. In Washington, the fee is only $250. In both Missouri and Michigan, you’ll pay a non-refundable $6000. In Illinois, applying for early approval of a recreational cannabis business license will cost current medical dispensary license holders a whopping $30,000. Permitting and licensing fees are usually somewhat higher than application fees, and there can be a variety of other supplemental fees as well. You can get more details on application and dispensary license costs for California, Colorado, Oklahoma, Washington, Missouri, and Michigan.

2. Real Estate Costs - $25k-$100k

Prices for renting real estate for a cannabis dispensary

Likely to be your single largest expense. Easily $50k-$100k on an annual basis for the rental of an average sized facility in a moderately competitive market. You will likely also face an additional $25k-$100k in renovation costs to finish the space in the style you desire – more to make it really stand out from the crowd. You may need functional additions as well such as expanding available parking or ensuring handicap accessibility.

3. Financial Service Costs - $1-2k/month

As mentioned earlier, finding financial institutions willing to work with dispensaries can be difficult. Local credit unions may provide a better alternative than banks, and there are private marijuana banks in several states now, but these institutions may require payment of a monthly holding fee, which generally ranges from $1-2k/month.

4. Professional Fees - $50k

When you’re starting a business that technically makes you vulnerable to federal raids or arrest, the need for qualified, marijuana-specific legal representation and advice should be obvious. Same for your financial situation, including your Section 280E compliance. Add in some decent insurance policies, and you can easily spend $50k or more on various professional services, depending on your size and scale.

5. Personnel Costs - $250k annually

Design a basic work schedule for your budtenders, administrative support, and security personnel, and count up the hours. You can expect to pay $12/hr. for budtenders, $15-$17 for floor managers or supervisors, and $20-$25 for experienced store managers. Paying six total employees an average wage of $20 works out to almost exactly $250k annually.

6. Capital Investments - $25k-$50k

Unless you’re planning on getting involved in concentrate processing or making edibles, or running your own grow operation, costs here are not extensive – barring your need for a sophisticated security and surveillance system. Your on-the-floor equipment will include computers, cash registers, and your POS system, and will probably cost $25k. After your initial hardware investment, you’ll likely pay a monthly fee for dispensary software. Expect to invest between $1K-$2K per month for subscription-based accounting software, POS service, etc. You’ll want to work with a security team to design a system that satisfies the legal requirements of your state, which can add another $50k or more.

7. Advertising/Marketing Costs - $25k–$100k

Guide of cannabis retail marketing and advertising

Be aware that the way in which dispensaries can legally advertise and market themselves is highly regulated. Here is a great guide on the dos and don’ts of cannabis retail marketing. Despite your somewhat limited options compared to traditional businesses, it is still easy to spend $25k–$100k or more annually on these activities. Traditional marketing activities like signage or radio/TV commercials are the most limited, so expect to have a relatively heavy digital presence; invest in a great website and strong social media marketing program.

8 Product Costs - $1,300/lb.–$1,500/lb

In some states, dispensaries are expressly forbidden from growing their own cannabis; in others they look at grow ops as a potential way to consolidate their supply chain and cut costs. It is far more common for dispensaries to procure their flower from authorized suppliers, so that’s the assumption we’ll work with. In states that have approved the usage of recreational cannabis raw marijuana (AKA: flower) prices have fluctuated in a turbulent 2020, but you can still expect to pay between $1,300/lb.–$1,500/lb. for most strains of cannabis – sometimes significantly more in the case of designer or low-yield strains.

9. Capitalization Requirements -  $50k- $300k

Here is another area where state by state variance is huge. Arizona mandates applicants demonstrate $150k in available funds. Nevada requires $250k, and Michigan $300K in total capital, while Illinois looks for applicants to have between $50k–$100k. Missouri and Alaska currently have no capital requirements.

Assuming you’re not paralyzed with sticker shock, in the next chapter we’re going to examine some of the ways dispensary owners can successfully raise capital for their venture.

For a breakdown of cost estimates by state, please refer to the links below.

Missouri: Cost to Open a Dispensary in Missouri