Are you interested in starting a medical marijuana dispensary? If YES, here is a complete guide to starting a medical marijuana dispensary from scratch with little money and no experience plus a sample medical marijuana dispensary business plan template.
Table of Content
- Is the Medical Marijuana Dispensary Business Legal?
- 2. Conduct Market Research and Feasibility Studies
- 3. Decide Which Niche to Concentrate On
- 4. Know Your Major Competitors in the Industry
- 5. Decide Whether to Buy a Franchise or Start from Scratch
- 9. Discuss with an Agent to Know the Best Insurance Policies for You
- 10. Protect your Intellectual Property With Trademark, Copyrights, Patents
- 11. Get the Necessary Professional Certification
- 12. Get the Necessary Legal Documents You Need to Operate
- 13. Write a Business Plan
- 14. Prepare a Detailed Cost Analysis
- 15. Raise the Needed Startup Capital
- 16. Choose a Suitable Location for your Business
- 17. Hire Employees for your Technical and Manpower Needs
- 18. Write a Marketing Plan Packed with ideas & Strategies
- 19. Work Out a Reasonable Pricing for your Services & Products
- 20. Develop Iron-clad Competitive Strategies to Help You Win
- 21. Brainstorm Possible Ways to Retain Clients & Customers
- 22. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
Is the Medical Marijuana Dispensary Business Legal?
The Congress, forty years ago, officially placed marijuana in Schedule I of the Controlled Substances Act because the government felt that the drug had a high potential for abuse. The Medical Marijuana Project was founded in 1995 so as to increase the support of the public towards non-punitive and non-coercive marijuana policies. According to a 1999 study, the active ingredients in marijuana were useful in treating pain, severe weight loss associated with AIDS and nausea.
Even though some states have slowly begun to adopt legislation that will make it easier for marijuana to be disseminated, with California leading 18 states; the adoption was through public referendum and legislation. In 15 of the 18 states, patients or their caregivers can cultivate plants to grow their marijuana at home. Also, states vary on how much marijuana plants one can have on hand for medical use, from 1 ounce up to 24 ounces.
Additionally, approved conditions for which marijuana can be used as treatment across the 18 states include HIV/AIDS, chronic pain, cancer, glaucoma, multiple sclerosis, severe nausea, epilepsy and other seizures. While the prosecution of entrepreneurs and the raid of marijuana dispensaries have drastically reduced, the business still poses a number of difficulties for any entrepreneur, especially as regards raising capital, finding investors, and setting up merchant accounts with banking institutions.
What Does It Take to Start a Medical Marijuana Dispensary Successfully?
According to a survey, 34% of entrepreneurs in this field alleged that regulatory compliance was the number one challenge, while 24% cited financing as the other challenge. For those hoping to start a marijuana dispensary, you’d first have to check with state officials so as to be properly guided to the local laws and ordinances that will govern your dispensary’s actions, due to the fact that the laws regarding medical marijuana vary from state to state, and there’s not always one department that is set up to govern the medical marijuana dispensary business.
An entrepreneur should as a starting point try out the Department of Health Services, before going through the licensing process. Also, it is necessary for any entrepreneur going into the medical marijuana business to sign up a physician, who sits on the dispensary or cooperative’s board of directors. While some states like California do not restrict the amount of dispensaries to a certain zone; other states like Delaware bid out dispensary licenses sparingly.
24 Steps to Starting a Medical Marijuana Dispensary
1. Understand the Industry
According to a think tank research conducted on the medical marijuana trade by See Change Strategy, the current national market for cannabis is $1.7 billion. It is expected that in recent times, there could be a surge to $8.9 billion. This is a billion dollars more than the annual Gross Domestic Product (GDP) of The Bahamas.
Interesting Statistics About the Industry
Medical marijuana is gradually gaining acceptance providing business investors and operators with unprecedented business opportunities. According to research, the market is likely to enjoy a 99% growth in the next five years just in existing markets, with twenty potential new markets opening. However, it is illegal, as the Federal Government’s stance on its illegality hasn’t changed.
According to the ArcView Market Research in 2013, the marijuana market was worth $1.53 billion, and grew 74% in 2014 to $2.7 billion. For 2015, the report suggested that legal marijuana will grow by 32%. The estimated amount that the national legal marijuana market will be worth in five years is $10.2 billion. Colorado’s tax revenue for the sales of legal marijuana in the first two months of 2014 was $6.17 million, with $40 million marijuana tax revenue being devoted to public school construction.
The estimated number of jobs was between 7,500 and 10,000. Arizona’s estimated medical marijuana market size in 2014 was $142.19 million, up from $35.37 million in 2013. According to a 2010 study from Harvard University, the Federal and State governments spends an estimated cost of $17.4 billion to prohibit marijuana.
Recreational Marijuana Stores industry has experienced an exponential growth of 34.2% for the years between 2010 and 2015. The industry has revenue of $4 billion, with 5,169 businesses employing 74,222 people. Only 23 states and the District of Columbia have laws that permit the use of medical marijuana. 8 of the 23 states, where medical cannabis is legal do not have any dispensaries.
In 2014, more than 1.5 million shoppers purchased legal marijuana from a dispensary, either recreational or medical. Five states have marijuana markets that are larger than $100 million. Colorado and Washington were the first states to open retail marijuana shops in the united states, and had a combined consumer that purchased marijuana products worth $370 million from 2014.
Marijuana food products is on the rise and is forecasted the hottest movements in the specialty food industry. Various retailers already offer pot-infused pastries, candies and other food items, as producers continue to play a larger role within the billion dollar specialty food industry.
2. Conduct Market Research and Feasibility Studies
- Demographics and Psychographics
When it comes to the demographic and psychographics composition of those who need medical marijuana ranges from those with severe pain, insomnia, anxiety, glaucoma, HIV/AIDS, epilepsy, nausea, cancer, and any other ailment that the physician deems that the use of the medical marijuana is fit for.
- Young adults
- Middle aged people – who are usually working stressed from work and may have insomnia.
- The aged who might suffer from severe joint pains and every other age categories who falls under the conditions listed by the physician.
3. Decide Which Niche to Concentrate On
The idea of finding a niche, which is narrowing down your market to a small segment of customers in the hope that they might be uniquely interested in what you have to offer, seems contradictory to the aim of starting a business, which should be targeted at getting as much people as possible.
Niche ideas are good in that they help differentiate the services and products of a company from another. It is niches that keep customers loyal. Some niche ideas in the medical marijuana dispensary business are;
- Supply of high-end concentrates
- Vegan/organic cannabis
- Wide variety of edibles = especially for those who would prefer to eat their cannabis.
- Offering spa services.
A thing to note about these different niches is that it is easier for a medium or large scale entrepreneur to combine two or more of their services if they want, but a small scale entrepreneur will have to specialize in just one area.
The Level of Competition in the Industry
Starting a medical marijuana dispensary business is not a thing for novices. It is a difficult and expensive venture, especially as licenses alone could cost at least $400,000 in liquid assets in some states. Also, the minimum requirement includes provision of diagrams and photos of a purchased facility that has been mapped out, with security taking a priority. Another thing that will be needed is a solid business plan that will state how the facility will be run, inventory tracked, how the state will be kept in the know, and financial projections.
In this industry, most of the competitive dynamics centre around the quality of cannabis dispensed, the service offered, the location where the dispensary is at, discounts offered for the products, and to some extent the brand of the business plays a huge role. Even though competition is stiff especially from the big, well-backed enterprises, smaller enterprises can still get their fair share of the market, if they stay true to the competitive dynamics.
4. Know Your Major Competitors in the Industry
This is an infant industry that doesn’t have the attributes of what brand names in other industry does, for example, the brand names in this business haven’t been on the scene for up to four years, but they are regarded as brand names because of their popularity amongst pot users. Here is a list of the big brands:
- Privateer Holdings (United States)
- GW Pharmaceuticals (Britain)
- Eaze (United States)
- Kannaway (United States)
- Hemp Vape (United States)
- MassRoots (United States)
- MedMen (United States)
- Hemp Meds Px (United States)
- MJ Freeway (United States)
- Medical Marijuana Inc. (United States)
- Leafly (United States)
- Marley Natural (Jamaica)
- CannVest (United States)
- Meadow (United States)
- Willie’s Reserve (United States)
- Dixie (United States)
- Auntie Dolores (United States)
- Bhang Medicinal Chocolate (United States)
- Flowhub (United States)
- Weed Maps (United States)
The medical marijuana dispensary business is not for the faint hearted, before venturing into this business, entrepreneurs must carry out a thorough research of the industry, and be certain of the government regulations in place, so that they do not end up wasting time and money on a venture that does not get the nod of the government. For example, in some states, there is a regulation outlawing high dose edibles; with the market for non-hardcore users probably at about 30 million people.
Millennials, which comprise of 10 million people, are the biggest spenders, and the ones that the entrepreneurs are fighting over for a market share. Despite the growing market for cannabis, the industry still has a lot of fragmentation, and there is no brand that is dominating the market place. Brands are only known to industry users and not to non-users; an attribute that is unlike that of other businesses.
The falling prices for cannabis has also led to more customers for legal stores, and more completion for the black market especially as customers prefer to purchase from legal stores. This means that if states lower their taxes, more of these companies will generate more revenue leading to more revenue tax for the states, since cost incurred by growers and dispensaries get passed along to the consumers, leading to high costs as against that in the black market.
5. Decide Whether to Buy a Franchise or Start from Scratch
Since this is a business with shaky laws and regulations guiding it, and entrepreneur that intends to go into it must determine which route into the industry would be better for it, and then go from there. The fact is this industry is still in its infancy and the start-up costs are pretty high, with the business also regarded as illegal by the Federal Government, any entrepreneur wanting to start-up must know all this.
Also, there aren’t that much franchises in this industry, except in niche fields like edibles. Entrepreneurs might not really have franchise as an option because most entrepreneurs are still trying to find their feet in the industry. Perhaps, once the industry is regulated, there will be more options as regards franchises.
6. Know the Possible Threats and Challenges You Will Face
The threats and challenges faced in this business include; changing regulations and zoning restrictions that could be of a serious problem to any emerging business organization. As there are no federal regulations in place for medical marijuana, entrepreneurs must ensure that they get advocates on the state and local level that will help them keep fair laws and practices, while keeping them informed of any new regulation.
7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)
Every business requires a legal entity regardless of what kind of business it is. The legal entity can either be a sole proprietorship or partnership, which opens the entrepreneur up to a lot of legal liability, as someone could sue your business, and end up owning all your personal assets. This therefore is not advisable, which is why many entrepreneurs choose to incorporate. However, setting up a corporation for a medical marijuana dispensary business isn’t advisable due to the rigid corporate bylaws.
Those who want to go into the medical marijuana dispensary business will be advised to open an association. An association is different from a partnership, corporation, or other legally formed entities. An association is an organization that is composed of a group of people partaking in general form and mode of procedure that is characterized like a corporation but without the formalities of quasi-corporate organization.
However, it is advisable that anyone seeking to start this kind of business seeks legal counsel, as different states have different ordinances and regulations that a counsel would know about, and then help decide which would be best for you.
8. Choose a Catchy Business Name
If you want to start this kind of business, you can look at choosing some of the listed names;
- Cushy Joint
- Weed County
- Weedy Choc
- High Nibbles
- Celebrity Puff
9. Discuss with an Agent to Know the Best Insurance Policies for You
This is a business that would really need to be insured against any unforeseen circumstances that might likely occur in the course of carrying out the business. The insurance policy for the medical marijuana business will definitely be some parts basic and some parts specific to the kind of business, the insurance policy is intended to cover.
Any entrepreneur wanting to go into the medical marijuana dispensary business can talk to a broker or agent so as to be guided on what insurance is best and suitable for the business, regardless of the niche that the entrepreneur is operating in.
Some of the insurance covers that an entrepreneur in this field might consider purchasing in the United States of America are but not limited to:
- Workers’ compensation
- Business interruption
- Products liability
- Cargo Insurance
- BOP coverage
- Equipment breakdown
- Cyber liability
10. Protect your Intellectual Property With Trademark, Copyrights, Patents
Ownership of intellectual property is a tricky issue in this industry especially as there will not be any federal trademark registration for any marijuana related mark. Some parts of the business do require intellectual property protection, while others do not. Any brand or business that intends to go into this route must seek a legal counsel that has a firm understanding of intellectual property and the state marijuana laws, so as to be able to provide a creative and effective solution to whatever might crop up when trying to register the intellectual property.
11. Get the Necessary Professional Certification
Yes, professional certifications are required for the medical marijuana dispensary business even as an employee as one would need to have a basic understand of cannabis apart from a personal experience, so as to be well rounded in the knowledge of cannabis.
In essence, any entrepreneur who wants to start out this business in the United States should be aware that if the employees are certified, they will be able to learn skills that would enable them work with as well as educate marijuana medical patients about using marijuana.
12. Get the Necessary Legal Documents You Need to Operate
Here are some of the basic legal documents that you would need to successfully run a medical marijuana dispensary business in the United States of America:
- Certificate of incorporation
- Business License
- Business Plan
- Corporate Bylaws
- Banking Resolutions
- Customer Forms and Procedures
- Employee Forms and Procedures
- Record Keeping Procedures
- Insurance Policy
13. Write a Business Plan
Every business requires a business plan. If you are serious about starting this business with the aim of competing and making profits, then you should ensure that you have a business plan before investing your hard earned money and time into the business. You will need a comprehensive business plan for a medical marijuana dispensary business, a business plan that will guide you and give you a clearer picture of what you intend achieving by starting the business.
A Business plan is the roadmap to the next year(s) of your business, and tells you what you will need to do, when you will need to do it, and how much it will cost. It also helps you plan for emergencies, and anticipate possible problems ahead of time. The time spent doing a business plan will be worth it for your medical marijuana dispensary business.
The whole idea of writing a business plan is not just to draft strategies that will help you effectively administer and manage your medical marijuana dispensary business, it is also so that a financial spreadsheet can be created that will show all of your income and expenses especially through the first year of business. The spreadsheet gives you an idea of what will be needed in the first year, and when it will be needed.
The key components that should be included in your business plan are as follows;
To begin with, every business plan needs an executive summary, this is the section where you are expected to clearly state the aim of your medical marijuana dispensary business, your company’s corporate culture, your sales and marketing strategies, your marketing goals, your target market and perhaps what stands you out from your competitors, You are also expected to state your company’s vision statement, mission statement and the areas where you want to cover.
The other section is that of the plan, which will tell why your medical marijuana dispensary business will be needed by customers. You would need to analyze the market size and shares, saturation of the market and room for growth. The higher the untapped market share for medical marijuana in your region, the better your chances at getting investors, provided the state’s regulation and policies regarding the marijuana dispensary business are positive.
Other things that would need to be included are the number of skilled people that would be employed, the types and quantities of the different strains of marijuana that would be sold, and the requisite scientific and technical expertise available.
You may need to engage the services of a business consultant to help you write a business plan for your medical marijuana dispensary business, especially as this isn’t a business you would want to throw away your investment for not getting it right. However, you can also with the aid of a business plan template online come up with a good business plan for your medical marijuana dispensary business. It is however advisable you use a consultant.
14. Prepare a Detailed Cost Analysis
From research, it can be deduced that starting a medical marijuana dispensary business isn’t something that comes cheap, neither is it for those that are faint of heart. The first set of money to be spent just to make an application before entering this business is usually non-refundable, and is always in thousands of dollars. The start-up cost also depends on the requirements of the state one would be operating in. some states that you have cultivation location, others don’t.
There are those who have low capital and really want to go into the business, the advise would be to either wait or go into another line in the industry that isn’t dispensary like going into the provision of marijuana infused products including edibles and salves. This is also not a business that can be operated from home, even if you intend to go into another line of marijuana like growing. They all require a regulatory structure.
The items listed below are the basics that you would need if you want to start your own medical marijuana dispensary business in certain states in the United States, although costs might vary according to states:
- The total fee to make an application $300
- Total fee for incorporation and legal fees $2,000
- Tier Grower’s license depending on the type 1 or 2 would cost between $3,750 and $5,750
- Total fee for build-out would cost $250,000
- Permits and licenses would cost $6,750
- Insurance liability would cost $3,000
- Display cases for the products would cost $1,500
- Office supplies like computer system, phones, inventory system, filing cabinets would cost $1,000
- Hiring of a Certified Public Accountant (CPA) would cost $2,000
- Security system would cost $1,000
- Product bottles and jars would cost $300
- Launching a website would cost $500
- Miscellaneous like signage, labels and business cards would cost $500
Going by the above report, as an entrepreneur you would need an average of $276,600 to start this business on a small scale in the affected states in the United States of America.
Those wanting to start a medium scale medical marijuana dispensary business in the United States would need $500,000. And those wanting to start on a large scale would need well over $1,000,000 as start-up capital.
15. Raise the Needed Startup Capital
The medical marijuana dispensary business is just like any other, and requires a business plan and other things a normal business does. The big difference is that when opening a dispensary, additional challenges might be faced due to the nature of the business. A dispenser needs a significant amount of financial investment to start and run for a period of time until it generates enough in revenue to sustain itself. Most local banks are not willing to provide financing for the medical marijuana dispensary business.
As an entrepreneur, you would need at least $150,000 in liquid funds to be considered in receiving a medical marijuana dispensary certificate, especially if there are more than one applicant in the zone you are applying for.
Given how tough it is to get funding through the traditional means, it might be advisable as a business to consider finding an angel investor. An angel investor is an individual that makes relatively small scale, and targeted investments, and would give you the required financing either through debt or equity.
The debt option is a loan with interest, which is how the investor generates a return for the business; the second option is in form of a capital contribution but this might not be feasible since medical marijuana dispensaries are supposed to run on a non-profit basis.
The options available when it comes to financing are:
- Personal savings
- Raising money through friends and family
- Getting a loan from an angel investor
- Looking for someone to partner with
16. Choose a Suitable Location for your Business
One of the hurdles faced by startup marijuana businesses is finding a suitable location for the business. This requires navigating a minefield of real estate challenges that can change the playing field overnight, forcing owners to scout for a new location quickly. This is a big issue for people in this industry, as it creates operational challenges and unexpected expenses, especially as it is difficult to get a location due to the many restrictions imposed by the state and local governments. Apart from the regulations by the state, many landlords are wary of the industry, creating a long list of parameters that must be satisfied before one can successfully occupy a property.
To go into this business, one must be prepared for the location challenge and must look into issues that might possibly crop up. Leasing a property is precarious because landlords could have a change of mind at any time, either by deciding that your business in not compatible with the other tenants, or even declare the lease federally illegal; especially as they (property owners) hold all the aces in this industry as contracts and leases are hard to enforce given the legal status of medical marijuana.
Another thing to look out for is the change in local and state rules requiring that you find a new location that would meet with the new regulations. Even after meeting all legal requirements by the state, the business could face another challenge through the locals who might oppose the business being sited at anywhere around the vicinity.
This business is surely not for the faint of heart, and location problems will always crop up especially as this still an infant industry, that is still trying to find proper regulation and cannot be regarded as stable yet.
17. Hire Employees for your Technical and Manpower Needs
Most of the equipment and tools needed to launch a medical marijuana dispensary business can be bought as fairly used. It is economical to purchase fairly used tools and equipment for a dispensary business especially if you just want to start the business on a small scale. These tools and equipment can be gotten from dispensaries who are about to close shop, or from online stores.
These are some of the equipment that you would need to fully launch your medical marijuana dispensary business;
- Display Shelves
- Display Jars
- Security system
- Computer system
The nature of this business is one in which you cannot run from home but must open a store, which size depends on your budget as well as other factors. Operating a store means that it is better you lease for a short to medium terms– especially if it isn’t a build out – since conditions could change at any time.
Regarding the number of employees needed to run a medical marijuana dispensary is dependent on the scale of business the entrepreneur is running. One person can run the business, but if the structure is bigger you would need to employ aisle attendants, cashier, supervisor, and accountant. This is about 5 to 7 people.
The Service Delivery Process of the Business
Except you are into the production process of growing your own strain, there isn’t much production process required for a medical marijuana dispensary business. The process could be in cultivating and developing strains, types and quality of the marijuana, and identifying which is better and why it is so.
Other processes could involve using cannabis to promote health in other ways such as the production of balms, vaporization, tinctures, and oils, as well as edibles such as chocolate and other such edibles.
18. Write a Marketing Plan Packed with ideas & Strategies
The aim of marketing is not only to make your products and services visible to your customers and non-customers, but to generate income as well. The medical marijuana dispensary business might still be new with little players on the field, but competition is still stiff. Also, the marketing methods might be a bit different from that of traditional businesses.
One of the ways to circumvent the competition is to invest in digital marketing solutions, especially as most consumers now make use of the internet to find or make a research about cannabis products and services. So, positioning your business well on the internet is a sure way of carving out your market share.
Here are some tips that can be used to market your medical marijuana dispensary business:
- Try to liaise with health care professionals, especially physicians, and solicit for advice. You could also ask that they partner with your dispensary, this way they could refer customers to you.
- Word of mouth referral
- Online display advertisement
- Potent Search Engine Optimization (SEO) for website
- Sponsoring music videos or shows
19. Work Out a Reasonable Pricing for your Services & Products
In this business, the cost for running a dispensary varies which automatically leads to a product being cheap or expensive. Costs vary because some people grow their own plants. Growing costs also depends on where the pot is grown, and the quality of medicine the grower hopes to achieve. The more quality the weed is, the higher the cost per ounce. The higher the THC concentration is, the more expensive the pot will be, and so many such factors.
20. Develop Iron-clad Competitive Strategies to Help You Win
There are many factors that go into planning a dispensary, which are majorly ensuring that your product is excellent, getting the right clients, increasing the productivity of your business, and financial forecasts; but these factors are business factors that all businesses need to grow, survive and become a brand.
What will make yours different is the extra strategy that is needed to win your share of the market, especially as your competitors are likely to be big with deep pockets and connections in the medical and political field. They can afford to go into researches, develop products, while still keeping their prices affordable to customers.
As an entrepreneur, staying ahead of competition means not limiting yourself to daily sales and finances. Your strategy should be one that evaluates the nature of the challenge your business is facing, and identifying the most critical aspects of the situation. You could visit dispensaries around you, or even those afar, and study how they go about their businesses, how they get their customers, what strains they sell, and how their service is like.
The web can also be utilized as a strategy, where you share your thoughts with users and also get their opinions on what they like and expect from a dispensary. Generally avoid fluff or sloppy thinking, and learn not to declare objectives, except you have the means for achieving them.
21. Brainstorm Possible Ways to Retain Clients & Customers
One sure way to increase customer retention for your medical marijuana dispensary business is to ensure that your service delivery is excellent. Customers not only love a conducive place where they can get the products they want, they also want to be sure that their needs and expectations are not only being proactively met but surpassed as well.
Customers love incentives, and you can begin a mobile loyalty programs for your customers, so that they can reap a reward while getting the latest information as regards any new products or services you might be offering. An incentive program not only increase customer retention but bring in new customers as well.
22. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
Every business requires a strategy that will help to boost brand awareness while creating a corporate identity for the dispensary business. Those who have sunk enough money into their medical marijuana business cannot afford not to ensure that they promote their brands as often as possible.
There are certain platforms one could use as leverage in boosting the medical marijuana dispensary brand and they are:
- Ensure that you promote your business online vigorously via your website
- Encourage your loyal customers to help you with referrals
- Employ the mailing approach
- Use the internet and certain platforms like Facebook and Twitter to the advantage of your business
- Sponsor music award shows or even music videos
- Get a celebrity brand ambassador
23. Create a Suppliers/Distribution Network
If you run a medical marijuana dispensary business in a state where there are no strict laws required that you grow your stock, then you would need to get different strains, jars and other such stuffs from vendors and distributors.
Even if you grow your own stock, you will still need those who might like you to sell their own strain for them. Also you will need those who will supply you with jars. It is therefore necessary that you are in a good business relationship with your vendors and suppliers as that would ensure that there are no delays in getting stock or equipment; also they can pass along tidbits that might be useful to your business.
24. Tips for Running a Medical Marijuana Dispensary Successfully
A medical marijuana dispensary business can be run successfully or woefully depending on your plans as regards the business in the first place. The business first requires that you walk a tightrope between the federal government and its policies, and the state and local government and their policies.
The business also requires that you seek the best counsel while getting a good consultant and CPA to help with the rigorous procedures and structures that will be required,
So, running a dispensary successful will require that you not only pass the laid down rules and procedures but that you offer excellent business products and services while planning for any eventuality that might occur in the medium to long term.
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