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How to Start a Dispensary

How to Start a Dispensary

Last updated on 1/28/2022

Cannabis has been a hot-button topic in recent years, as many states have begun to legalize the product. With legalization becoming more popular, opening a dispensary presents a lucrative business opportunity that owners can get in on early. If current trends continue, more states will legalize cannabis and demand for the product will steadily rise, which makes owning a dispensary an even more attractive option for prospective dispensary owners. If you're looking to start your own dispensary, check out our dispensary startup guide.

Looking for supplies for your dispensary? Click below.

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What Is a Dispensary?

A cannabis dispensary sells cannabis products to customers for medical or recreational use. Since cannabis is still illegal in the United States at the federal level, customers buy cannabis products at dispensaries rather than receiving them at pharmacies. Outside of cannabis products, dispensaries may also sell items associated with the consumption of cannabis such as water pipes.

Opening a Dispensary

Due to the freshness of the industry and questions surrounding future legality, launching your own dispensary business may seem overwhelming. However, a dispensary owner can take advantage of the growing industry and create a lucrative business. For this reason, we've created a 10-step guide to opening a dispensary, covering everything you need to know about starting a dispensary.

1. Dispensary Business Plan

Dispensary Menu

Creating an effective business plan is one of the first steps you should take when opening a dispensary. A business plan serves as your blueprint for starting your dispensary, outlining the most important information. A strong business plan outlines the future of your business and provides you with a way to disclose financial information to potential investors and lenders. To create a thorough business plan for your dispensary, include the following topics:

  1. Executive Summary - This section provides a brief overview of all the information included in your business plan. Since it is a summary, it is traditionally written last.
  2. Company Description - The company description is similar to the executive summary. However, it expands on topics and provides more in-depth information.
  3. Concept and Menu - In this section, you should discuss topics such as your dispensary’s menu, service, and design layout.
  4. Management and Ownership Structure - Discuss what type of ownership structure your dispensary has, as well as how the hierarchy of management will be established.
  5. Employees and Staffing Needs - Outline your dispensary’s staffing needs, detailing what types of positions need to be filled and how many employees you require.
  6. Marketing and Competitor Analysis - Analyze potential competitors that could compete with your ability to reach your target market, both directly and indirectly.
  7. Advertising and Marketing Strategies - List potential advertising and marketing campaigns your dispensary can adopt to reach your target market and acquire new customers.
  8. Financial Projection and Summary - Outline your sales projections, perform a break-even analysis, calculate business expenses, and disclose on-hand capital.
If you're looking for a more in-depth guide to business plans and how to write them, check out our business plan guide.

2. Dispensary Menu

To run a successful dispensary, you need to offer a wide selection of cannabis products to your consumer base. There are many different types of cannabis products, and each customer will have their own different preferences. To ensure your menu offerings satisfy your consumer base, you should include the following items on your dispensary menu:

  • Dry Leaf - When people think of cannabis, dry leaf is likely the first type of product that comes to mind. Dry leaf is the smokeable part of the cannabis plant, and it is the most common type of cannabis product on the market. Dry leaf can be sold on its own or pre-rolled.

  • Edibles - Edibles are cannabis-infused food products, allowing the customer to ingest cannabis without smoking. Additionally, edibles are made with precise doses of THC or CBD, making them perfect for those looking for an exact amount.

  • Pills - Pills are very similar to edibles as they are ingested and take up to an hour to take effect. However, pills are cheaper for the consumer as no food preparation is involved.

  • Tinctures - Tinctures are highly concentrated herbal extracts that are made by soaking cannabis in alcohol. Tinctures are taken orally, with the cannabis being absorbed by the blood vessels under the tongue.

  • Topicals - Topicals are cannabis-infused products such as lotions or salves. Topicals don’t have the same psychoactive effects as other cannabis products, instead offering localized relief as they are absorbed through the skin.

3. Dispensary Supplies

Dispensary Supplies

Outside of your dispensary products, you'll also have to secure several dispensary supplies as well. These supplies will be used to either enhance the display of your products or protect your inventory and employees. When trying to find supplies for your dispensary, here are the things you should consider:

  1. Packaging and Labeling - Cannabis packaging is required to store and advertise your dispensary's cannabis products. Cannabis labeling is also recommended to attractively present cannabis products to customers.
  2. Shelving - Shelving will need to be installed around your dispensary to display products.
  3. Safety Equipment - Safety equipment such as gloves, aprons, protective eyewear, and sleeve covers are required to prevent accidents from occurring during the processing of products. Additionally, this protective equipment helps prevent contamination of products.
  4. Processing Equipment - Cannabis processing equipment is required for the weighing and packaging of products.
  5. Security Cameras - Your dispensary will need several security measures such as cameras to protect your inventory.

4. Dispensary Funding

Since most banks are insured by the Federal Deposit Insurance Corporation and cannabis is illegal at the federal level, many banks will not work with dispensaries. Unlike with restaurant startup loans, the Small Business Administration does not work with companies in the cannabis and hemp industries, further restricting funding options. This is a challenge for prospective dispensary owners, as opening a dispensary can cost well over $100,000. Despite these difficulties, here are some of the best options you can use to fund your dispensary:

  • Self Funding - If you have a large amount of savings, you may be able to tap into your reserves and fund part of your dispensary yourself. While you won’t have to worry about interest rates or losing equity with self-funding, you do assume all of the financial risks yourself.

  • Crowdsourcing - Crowdsourcing involves pooling resources from a community of people, each donating a small amount toward a goal. When crowdsourcing a new business, contributors are often rewarded with discounts or access to exclusive products.

  • Short-Term Loans - A short-term loan is a loan with a quick repayment period, often used by new businesses and start-ups when they are unable to secure a line of credit from the bank. Most short-term loans need to be paid off within 6-18 months, making them a great option for businesses looking for quick funding.

  • Equity Financing - Equity financing is the process of giving up a percentage of ownership to an investor in exchange for an investment. This type of financing allows you to escape debt while still acquiring funding, however forfeiting part of your ownership can cause you to not have full control of business decisions.

  • Equipment Financing - Cannabis equipment financing is a great way for your dispensary to acquire funds to purchase a certain type of equipment. This type of loan is asset-based financing, with the equipment or machinery you purchase serving as collateral until the loan is paid back in full.

5. Dispensary Permits

Dispensary Permits

Cannabis laws vary from state to state, and the product is still illegal at the federal level. As a result, there are a wide variety of permits and licenses required to open a dispensary and great variance between locations. Here are a few of the permits and licenses you’ll need to start a dispensary and establish a legal business entity.

  1. Business License - To legally operate a business within an industry or location, you need a government-issued permit known as a business license.
  2. Employee Identification Number - An EIN is a unique nine-digit number assigned to your business by the IRS for identification purposes.
  3. Seller’s Permit - A seller's permit permits a business to collect sales tax.
  4. Health Permit - A health permit confirms the health and safety of food items and is required for any dispensary that sells prepared food products such as edibles.
  5. Grower's Permit - Many states require a special type of permit to grow cannabis. Check your local and state laws to see what steps you need to take before your dispensary can grow its cannabis.
  6. Dispensary Permit - Some states require a dispensary owner to have a dispensary permit before operation can begin. In certain states, these permits may also limit the number of dispensaries an owner can open up.
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6. Dispensary Locations

Choosing the right location for your dispensary is an important part of your business’s success. A quality dispensary location should allow you to properly conduct business and make it possible for customers to conveniently reach you. You'll want to conduct a location analysis to determine where the best location for your dispensary is. While determining the location for your dispensary, here are important factors to consider:

  • Legality - The most important part of your dispensary location is the legality of cannabis. If you’re selling cannabis for recreational purposes, then your location needs to be located in a legal recreational state, while medical dispensaries need to be located in areas where medical cannabis is legal.

  • Space - Your dispensary location needs to be large enough to house a check-in station, several sales terminals, and your inventory.

  • Parking - Accessible parking makes it convenient for customers to quickly pick up their orders.

  • Target Market - Conduct market research to ensure your dispensary location is nearby where your target market resides. Your target market should be young adults who are cannabis-friendly, so try targeting an up-and-coming neighborhood filled with many young professionals.

  • Ease of Delivery - If you plan on delivering products to consumers, then your dispensary needs to be located where goods can be shipped to and from.

7. Dispensary Layout Design

Dispensary Layout Design

The most important aspect of designing your dispensary’s layout is ensuring that it is convenient for customers to shop in. You want customers to be able to easily browse your products. Additionally, dispensaries have some specific layout additions that need to be added due to the nature of the product they sell. When designing your dispensary’s layout, here are the most important parts to keep in mind:

  • Check-In Area - There should be a check-in station at the front of your dispensary where customers can sign in and their IDs can be checked by an employee.

  • Storage Room - A dispensary needs a secure storage room to protect and store inventory that is not on display.

  • Terminals - Your dispensary should have several terminals where customers can pay for goods and check out.

  • Product Display - An area of your dispensary can be dedicated to displaying various cannabis products with the intent of enticing impulse sales from consumers.

  • Drive-Thru Area - Some dispensaries provide drive-thru service, allowing customers to order online and quickly pick up their products.

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8. Dispensary Jobs

Due to the unique nature of dispensaries, many interesting positions need to be filled for the business to operate smoothly. These positions vary, with some jobs responsible for enhancing the customer experience, while others are involved with the actual creation of products for sale. When starting your dispensary, here are some positions that you should look to fill right away:

  • Budtender - A budtender is someone knowledgeable about cannabis and can answer customers’ questions to help them make an informed purchase.

  • Cashier - A dispensary needs cashiers to check out customers that are purchasing products.

  • Front Desk Associate - An employee must be stationed at the front desk of the dispensary. A front desk associate is responsible for creating a positive first impression as well as completing other tasks such as checking IDs.

  • Delivery Person - Dispensaries that offer delivery services require a delivery person to complete deliveries.

  • Edible Maker - Dispensaries in recreational states may have chefs on hand to create fresh edibles for sale.

9. Dispensary Marketing

Dispensary Marketing

To grow your dispensary business, you're going to need to implement several marketing strategies to attract new customers. Reaching prospective customers as a dispensary can be difficult due to its niche market, but there are several ideas that you can use to reach more customers. If you're trying to entice customers to shop at your dispensary, here are a few ideas you can use to strengthen your marketing campaigns:

  1. Create a Strong Website/Online Menu - To attract new customers to your dispensary, try building a strong website with a full online menu. A strong website will make it easier for new customers to find you online, while a full online menu allows prospective customers to browse your inventory from home.
  2. Sign-Up Bonuses - Offering extra bonuses and deals to new members that sign up for your dispensary is a great way to acquire new customers. One of the most effective sign-up bonuses to offer is a flat percentage discount on a customer’s first purchase after signing up.
  3. Referral Rewards - A great way to attract new customers is by offering referral bonuses to existing customers that refer others to your business. Referral bonuses typically come in the form of some discount for both the referrer and the referee, making it a fantastic marketing tool.
  4. Promotions and Sales - Offering sales and promotions of specific brands or types of products is another great way to get more people to shop at your dispensary. Sales and promotions entice customers to try your dispensary, and if they have a positive experience, then they can become repeat customers.
  5. Loyalty Programs - Retaining customers is even more important than attracting new ones. A loyalty program is a method in which you offer special discounts and promotions to your best customers, ensuring that they continue to do business with you.

10. Opening Your Dispensary

When it becomes time to open your dispensary to the public, you need to decide on what type of openings you will host for customers. The way you market your opening to customers has a major effect on the hype generated around your business. To generate the maximum amount of buzz around opening your dispensary, here are two types of openings you can consider:

Soft Opening

A soft opening is a simulated opening where customers can get a preview of your dispensary, like a beta test. Not only are soft openings great for reaching customers, but they also allow staff to familiarize themselves with their positions and work out any problems before the dispensary opens. A soft opening is a fantastic way for customers to learn about your dispensary and form early relationships with your business.

Grand Opening

A grand opening is a big event that marks the official start of your business. A large opening event is typically marked by a variety of special sales, giving your dispensary the chance to attract new customers right from the start. Your dispensary grand opening should also have special features such as raffles for free products and exclusive sign-up bonuses for early adopters.

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Cannabis products are gaining a lot of traction across the United States and the world, making it the perfect time to start a dispensary. Starting a dispensary at this time allows you to get an early start in an industry that seems primed to take off.

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