Wondering what it takes to open a cannabis dispensary? Our guide is designed to help aspiring license-holders learn everything there is to know about running a compliant cannabis retail operation.
Dutchie
Wondering what it takes to open a cannabis dispensary? Our guide is designed to help aspiring license-holders learn everything there is to know about running a compliant cannabis retail operation.
This content is provided for informational purposes only and is not intended as legal advice. You are responsible for your own compliance with laws and regulations.
We'll answer your most burning questions related to opening a cannabis dispensary, including:
Let's dive in.
You can’t sell cannabis legally until you possess a license.
This license is essentially an agreement between you and the state or province: they agree to grant you the right to sell cannabis products in exchange for your agreement to comply with the area’s rules and regulations. This relationship requires a great degree of trust and the application process is the first step towards developing and earning that trust.
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You might also have to provide additional documents from supporting government agencies. For instance, if you are planning on developing land under the jurisdiction of the water resource or wildlife board, you'll have to seek approval from those agencies.
Depending upon where you want to establish your business, you may have to present your cannabis business plan at a council hearing, public hearing, or both. Many of the issues you’ll address during these hearings pertain to general, small business regulations. For example, the city council might require you to build a certain number of parking spaces, or close the shop by a certain hour. Some jurisdictions enforce additional, cannabis-specific local laws, and it’s your responsibility to present a comprehensive plan that follows those laws.
Look out for strict enrollment periods for cannabis dispensary applications, so the first thing you will need to determine is when you can apply for a license. Nevada, for instance, currently allows interested parties to sign up for a notification 45-day before the next cannabis dispensary application period
opens.
This period varies, but can add to the wait. Many state and province governments enforce a cap on the number of dispensaries that can operate within their jurisdiction at any given time. This creates situations in which eligible applicants must either wait for a vacated license or drum up funding to acquire an existing licensee.
Although every element of your business plan is crucial, the financial component of the plan will likely receive the most attention and scrutiny. If you're seeking outside investment, you'll need to show exactly how you plan on spending your invested capital.
Start with identifying a funding goal and then break it down into individual, itemized purchases that help sustain the business until it reaches self-sufficiency.
Here are some expenses you'll need to consider when opening a dispensary:
Once you’ve calculated exactly how much money it will take to fund your business, you must also develop a plan for paying back your investors. You'll have to predict your monthly operating expenses as accurately as possible, including every detail for your investors. Be sure to include legal fees, employee salaries, building maintenance, and sales expenditures as part of your operating costs.
Include a profit and loss forecast that uses the market data you’ve gathered to determine how successful you can expect your dispensary to be through the first five years. These figures should reflect conservative estimates on how popular your dispensary’s products should be as a new business competing in a highly-
regulated industry.
You should also include a cash flow statement that breaks down the timeline of funds coming in and going out. This is especially important for US cannabis dispensaries because of the lack of financing and credit lines. Only Canadian customers can currently use credit cards, but recently, US retailers have been able to work with many financial institutions (FIs), including state-level banks and credit unions. These FIs have documented audit processes and will work with the different regulatory bodies to ensure you both remain compliant.
Before you get started on your business plan, you’ll need to know where your dispensary will be located.
Most states and provinces require prospective dispensary owners to have a location in mind before they can even begin to fill out license application forms—some even require the lease already in hand. Since your future dispensary’s success relies so heavily on its location, you must choose a spot that complies with local laws while also being viable from a retail perspective. This means that before you start writing a business plan, you should have a well-vetted location locked in and ready.
When you describe security solutions in your operational plan, you will need to demonstrate how those solutions work in your dispensary’s specific layout. If you change the planned location of your dispensary at any time during the application process, you will have to change dozens of corresponding elements of your business plan to match.
Obtaining a location can be challenging in some areas. In San Diego, California, for instance, the state issues conditional permits for prospective dispensary owners and publishes them online. This is because San Diego requires every dispensary to be a suitably far distance away from every other dispensary.
Another evergreen law states that cannabis retailers must be an appropriate distance (usually 600-1,000 feet) away from schools. In general, keeping your store away from any place frequented by minors can keep your business out of hot water. In Alberta, cannabis retailers can’t select a location within 100 meters
of a school or healthcare facility.
Most jurisdictions don’t require you to apply for a conditional permit. Instead, they will simply deny your application if you choose a location that does not fit their requirements. This means you should pay extra attention to zoning, development costs, and community attitudes towards cannabis before settling on a location for your dispensary. Taking the time to understand local customer demographics will also help ensure long-term success.
Your insurance broker should be someone who inspires confidence and will be a trusted business partner who can help you make informed business decisions. They should have deep knowledge insurance as it relates to the cannabis industry, in addition to demonstrating going the extra mile to find the best products—and provide you with upfront details about what's not covered (AKA exclusions).
Once you decide on a cannabis insurance partner, you'll want to pinpoint the most important products and coverage you'll need as an operator in the cannabis sector.
Identify the processes, contract language, security systems, and other activities you can pull from that complement your insurance products. Creating a holistic risk mitigation strategy to protect your business can help reduce your overall insurance price.
Most dispensaries start with these four basic types of coverage:
You might also want to consider Employment Practice Liability and Cyber Insurance—regardless, all options can (and should) be reviewed with your insurance broker in order to select the ideal policy for your business.
Next, begin firing off quote requests for the various insurance products you're interested in.
Quotes are free, so it's worth completing the application for all relevant products. You'll make your decision once you've gathered prices from multiple brokers and have a thorough understanding of what a given product does (or does not) cover.
On average, quotes take about 5-10 business days to come back—assuming all information collected is sufficient for the carriers to price your product. In some cases, carriers need additional information, so the process can take longer.
Review all quotes with your broker and make sure you categorize them by:
While not common, in some cases, brokers can negotiate with the carrier to remove an exclusion.
Once you decide to buy, your broker will tell you how you can pay for your policy.
Some brokers offer the option to pay in installments rather than a bulk one-time payment. This is an attractive option for smaller and newer cannabis businesses that may be budget-conscious.
Building the right team can be one of the most challenging parts of starting a new business. But in the long run, investing in well-trained staff can save you thousands of dollars and help you retain your best customers. While building the right team is a challenge in every industry, it's particularly tough in the cannabis industry because of the stringent requirements for dispensary employees.
And because legal adult-use cannabis only hit the mainstream within the past decade, it's hard to find qualified (and experienced) employees who can help you survive the rough seas of starting up and plotting a path to success.
Which roles do you need to hire for your dispensary team?
We recommend splitting the hiring process into two separate role types: consultants and employees.
Consultants are part-time members of the team whose services you need periodically, but not regularly enough to make them full-time employees. These types of professionals are typically called in to perform specific functions like file taxes, carry out audits and assessments, and other specialized tasks for your dispensary. Always verify that your consultants are appropriately licensed to carry out the duties you assign to them.
Some of the roles that are usually filled by consultants include:
Let's dive into each of these in more detail.
1. Legal Counsel
This is the most important role you need to fill before you open your cannabis dispensary. Because the cannabis industry is relatively young, there is still a lot of grey area regarding the industry's regulations and policies.
For instance, in the United States there is a gap between the positions taken by the federal government and many states over whether to legalize either medical or recreational cannabis consumption. Because of the grey area within the regulations, cannabis businesses should always be able to fall back on the services of a lawyer to help them navigate the complexities of the legal position.
There are two main reasons your dispensary will need a lawyer on retainer. The first is to navigate the registration and licensing process for the dispensary. The second is in case you need good representation should you ever have to go to court.
2. Certified Public Accountant (CPA)
The second most important consultant you will have in your team will be a Chartered Public Accountant (CPA). The company accountant will help you sort out your payroll, pay your state and federal income taxes, and comply with any other IRS or CRA requirements.
Having a good accountant will help you comply with mandatory payments, deductions, and declarations and save you a lot of money in accounting errors and penalties. Therefore, you should make sure you hire the best accountant you can afford because a mistake from them could cost you a lot of money or, even worse, take you to jail.
3. Compliance Officer
Every state has created its system to regulate cannabis dispensaries. However, because of the lack of uniformity of regulation across the different states, compliance with the regulations looks different from one state to another. As a result, your dispensary needs a full-time compliance officer to help you manage and document all aspects of your business for compliance purposes.
Furthermore, the compliance officer handles any paperwork that needs to be filed and administrative reporting mandated by the state. Once the business is established, it is common for most employers to train their office managers to play the role of the compliance officer. However, you should get an experienced professional to help you set up the right processes during the startup phase of the dispensary.
4. Security Consultant
This is another important role that you need to fill before you even open your doors to customers. In most states, you will not get a license before passing a security audit carried out by a licensed professional in the security industry. Many states have security and surveillance guidelines that you have to adhere to qualify for licensing, so having your own professional oversee the installation of your security system could help speed along the process of acquiring a license.
It should go without saying that, after getting your license, you will need to secure the valuable product in the store and your staff members. Therefore, as a bare minimum, you're going to need a 24/7/365 security presence, including live personnel, transport planning, alarms, cameras, and recording equipment.
Now that we are done with the key consulting positions you need to fill, let us move on to the key employee positions that will also need to be filled before receiving customers. These include:
5. General Manager
This is perhaps the most important role you’ll need to fill early on. You will need a qualified and experienced retail store manager to run the dispensary. This person can assist you during the initial set-up of the store, advise on best practices, help evaluate suppliers, recommend potential employees, and provide a great deal of general assistance in running your storefront.
It is not uncommon to find business owners trying to operate as store managers and, while it is not illegal, it would not be recommended. Store managers in cannabis dispensaries have to be licensed to work in a cannabis business, which is not something the entrepreneur would ordinarily have. Furthermore, we mentioned in the previous chapter that a cannabis business is first-and-foremost a retail business. Having a qualified and experienced retail store manager could help implement those things you can only know after spending time in the retail industry.
6. Budtenders
Your budtenders are your customers' first line of contact, so their performance can make or break you. Having good budtenders also ensures your store operates smoothly and has great sales. Within the budtender ecosystem, you might hire a lead budtender, a key budtender (keyholder) or a budtender manager combo.
Furthermore, a simple mistake like selling cannabis to an underage customer or unqualified patient (for medical cannabis dispensaries) could result in you losing your business license and being put under a states-wide lifetime ban from ever again applying for a cannabis license.. As a result, it is important that you find the right people and give them adequate training to be ambassadors for your brand. They should be the most informed people in the room on the quality of the product and the effects that are to be expected. Your budtenders play a crucial role in your customer experience, so make sure you get the right ones.
7. Inventory Manager
It’s critical to hire an experienced and dedicated inventory manager whose sole job is to conduct daily inventory audits and reconciliations and handle any inventory reports or inspections by the regulators. In addition, your inventory manager needs to monitor the product quantities in your stores and make sure top-selling items get restocked as efficiently as possible.
Your inventory manager needs to implement an effective inventory management system that helps you identify missing products easily and also catch defective products and execute recalls smoothly. This is another important hire that you will need to get right.
8. Security Officer
Cannabis dispensaries are attractive targets for both employee and outsider theft. For this reason, investing in qualified and trained full-time security personnel to complement your security system would be a great idea.
Another reason why security officers would be a good idea is because of how hard it is to get comprehensive insurance coverage, especially in the United States, where the cannabis business is still not legal at federal level. Therefore, you are better off beefing up your security than betting on insurance should something go wrong.
Now that you know the key roles you need to fill, let us take you through how to hire great employees. Most people think that employment is simply about offering key personnel favorable salaries to work for you—but it is much more than that.
We have prepared a guide of six steps for you to follow to hire and retain great team members. Those six steps are:
Cannabis is a niche industry that offers a unique product. Cannabis consumers are of a certain demographic and profile and can be found by identifying where they would 'hang out’. Given that cannabis appeals more to the young than it does to the old, you should investigate where the Millennial and Gen Z groups spend their time.
For most of them, you will find that their favorite hangout spot is the internet, so you will have to invest in social media ads and recruiting campaigns. You will also have to join online jobs platforms like weednextdoor.com, which specialize in helping cannabis businesses find employees interested in working for them.
In addition to recruiting online, you should source referrals from your best employees. who are great sources of references for target employees, since they know what you need from an employee, and will be able to spot who is going to be a good fit. It would help if you also considered recruiting on campuses because cannabis is popular among the younger generations.
A good job posting acts like a good hook to a story. With a good posting, you can be sure that the best available people will apply for the job, especially if you figured out where to find them. Several elements comprise a good job post:
If your job posting includes all the above, you will receive the best applicants available on that platform.
One of the best ways to identify a potential diamond in the rough is to design a thorough and smart interview process. Aim to use the interview process to get a sense of the candidate's background, past job experience, strengths, and weaknesses, as well as their dreams and ambitions. As a result, you will be better placed to identify who could best fit in your team and who can best represent the interests of your company going forward.
While many employers often skip this step, calling those listed as references on the applicant's resume can help you gain some insights and context on the candidate that you could not get from the candidate themselves—insights like what the candidate is like to work with, manage, and how they align with your value system.
Candidates often exaggerate their strengths and diminish their weaknesses. Calling the references and asking them to evaluate the candidate's strengths and weaknesses might be a more revealing experience than the interview with the candidate. You will be more likely to get meaningful feedback on the candidate's nature and work ethic—speaking as one manager/employer to another—than as an interviewer to a potential recruit.
The onboarding process also plays a big role in the performance of a recruit. It could make the difference between a recruit hitting the ground running and failing to adjust to the company culture and leaving prematurely.
During the onboarding process, there are some steps you can take to make sure that your recruits adjust to your culture quickly and participate in the company's success. These steps include:
Hiring the best talent and offering them big paychecks won’t mean much if you can’t retain them. All a high staff turnover does is increase your costs of recruitment and destroy your organizational culture and morale.
Being able to retain employees is one of the markers of a successful business. Therefore implementing a talent retention strategy early on is key. Here are some of the ways to do that:
Sourcing inventory for dispensaries largely boils down to one of two options: you can either grow your own flower or purchase it from an authorized supplier. You’ll also have to evaluate vendors for accessories you may want to sell at your store. Generally speaking, adult-use dispensaries tend not to grow their flower, while medical dispensaries do—which is mandated in some states like Colorado.
But even if you do do host your own grow operations, you won't be able to grow all the strains you'd like to sell –—which means most dispensaries start to rely on licensed growers at some point. Let’s go through some of the considerations you should keep in mind when selecting the right choice for your operation.
The heart of any successful retail operation is a solid inventory management system, especially when it involves a perishable product like cannabis (and is mandated by regulatory authorities). Assigning a dollar value to all goods in stock is crucial—this amount represents a significant portion of your current assets and helps you make better decisions. Any inventory that gets sold frees up more cash flow for the dispensary to replenish goods and maintain the required stock. As far as procedures and processes go, you’ll want to start by creating a flowchart that visually represents of the inventory process, from receiving, to auditing, to monitoring stock levels and reordering. Every element should be documented and clearly defined. Additionally, automating key procedures like compliance reporting won't only save you time and money, it'll help ensure you stay current on reports and avoid any compliance infractions. Learn in-depth how you can control and manage cannabis inventory.
The cannabis dispensary is a far more complex environment than traditional retail. Not only do you face the same performance burdens as other businesses, but you also have to deal with significant legal and compliance requirements. Choosing the right technology infrastructure and a cannabis POS system for your dispensary can go a long way towards mitigating many of these challenges. Here are a few features to look for when shopping for a cannabis POS system:
You should also have a detailed plan for ensuring industry-standard security on your dispensary’s premises. Cannabis security is one of the most sensitive issues regulators are concerned with. You must demonstrate that your dispensary is secure enough to prevent cannabis products from being diverted to the black market or falling into the hands of minors.
