Dispensary tips

The complete guide to writing a dispensary business plan

By
Dutchie
November 18, 2022

Disclaimer: Local application requirements can vary. Be sure to look closely at the specific application criteria of your municipality.

With every new state or province that joins the cannabis industry, new opportunities arise. Those dreaming about running retail operations (maybe that’s you!) become the entrepreneurs who operate the cultivation, processing, distribution, and dispensary businesses the industry relies on.

The explosive growth of the cannabis industry presents some of the most lucrative entrepreneurial opportunities available today. In the U.S., sales are projected to soar to $100 billion in 2030, according to Cowen Research. No other current industry promises greater growth—nor a more profitable long-term outlook.

Dispensaries are capable of high profit margins, and statistically, three out of four recoup operating costs within their first year of operation. But opening a dispensary carries a unique set of challenges when compared to opening most other small retail businesses.

Why do I need a dispensary business plan?

Your business plan is one of the primary documents the state will use to determine whether your dispensary license application will be approved or denied. You may need to refer to it if authorities have a question about how you plan on satisfying the legal requirements of running a dispensary.

Your dispensary’s business plan should detail:

  • Geographical research
  • Financing
  • Inventory sourcing
  • Operational strategy and tech stack
  • Compliance and security
  • Organizational structure
  • Community commitments (i.e. social equity initiatives)

All of these are strategic elements that will distinguish your application from every other application on the state or province’s docket.

First thing’s first: location, location, location

Before getting 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 even begin to fill out license application forms. Some even require the lease (or deed) already in hand.

Since your dispensary’s location will play a large role in its overall success, it’s critical that choose a spot that not only complies with local laws, but is viable from a retail perspective. This means that even before you start writing your business plan, you should have a well-vetted location confirmed.

Pay extra attention to zoning, development costs, and community attitudes in your local market before settling on a location for your dispensary. Many municipalities put buffer zones in place, preventing dispensaries from opening within a certain distance from schools or other places frequented by minors. Taking the time to understand your community’s demographics can also help ensure long-term success.

What should I include in my dispensary business plan?

1. Executive summary

Your executive summary is a concise one or two-page document that contains all of the most important information about your dispensary. It’s the first thing that your investors and local regulators will read—and if it passes their initial audit, they’ll then use it as an ongoing reference point. By starting off with a strong summary, you’ll be able to fill in the details of the other sections in your business plan based on the goals you’ve outlined.

Note: If you plan on raising capital from investors who aren’t familiar with the cannabis industry, this is the place to expand on the market opportunity using poll data and other statistics.

2. Market overview

This is where you’ll (1) describe the demand for cannabis in your local market and (2) address how your dispensary will satisfy that demand; supporting your statements with recent consumer research.

One of the most logical and effective ways to present this information is by citing data first from a broad perspective, and then narrowing the focus. Many business plan experts recommend starting with broad-level figures—such as the fact that nearly 49% percent of Americans and 55% of Canadians have consumed cannabis—before zooming in on your local-level data.

You’ll also need to demonstrate an intimate knowledge of your state or province’s cannabis laws, outline the level of competition you expect to face, and differentiate your business’s unique advantages. This means providing an overview of the industry in your state or province, including the number of cannabis retailers currently operating—and their sales figures, if publicly reported.

3. Strategy and implementation

Here’s where you’ll detail your marketing and sales plan, strategic partnerships, and overall positioning. Your first consideration: what kind of dispensary are you?

Will you cater to recreational users, medical patients, or both? Generally, catering to medical patients means stocking higher potency products reserved exclusively for patients who hold medical ID cards. Depending on the rules and regulations in your state, medical patients may be exempt from certain cannabis taxes and be able to take advantage of larger order limits and products with higher THC potency.

Describe the advantages of your dispensary’s physical location. Think about the conveniences your location might offer, such as potential delivery range. Explain how the products you’ll sell and your store’s location will help the local community capitalize on some untapped opportunity. For example, if you plan to cater to medical patients, you should present a retail layout that’s accommodating to people with injuries or ailments.

If you plan on focusing on low-priced, high-volume products, explain why that is something the local cannabis industry could benefit from. Conversely, if you’re positioning yourself as a luxury brand, you’ll be expected to defend that decision by pointing to a need for top-shelf cannabis products in your local area.

Lastly, define your ideal customer. Some cannabis dispensaries focus on serving a younger crowd. Others focus on older consumers and medical patients who are less impressed by digital marketing. Again—demonstrate to investors and regulators you understand your audience and your dispensary caters to a legitimate need.

4. Operational plan

This section is dedicated to the details of your location, facilities, equipment, SOPs (Standard Operating Procedures), and security plans. This is also where you will describe how your dispensary will adhere to seed-to-sale tracking requirements—where you must report every single sales transaction that occurs in your dispensary to regulators through their preferred system. A compliant retail technology platform such as Dutchie is essential for fulfilling this requirement.‍

Your operational plan needs to answer questions about your sourcing and fulfillment solutions, such as:

  • Who’s going to provide you with cannabis products to sell?
  • Do you have plans to be vertically-integrated? And if so, how will you prepare for the additional licensing?
  • How will you ensure products are secure and employees are safe every step of the way?

Seed-to-sale compliance

By the time you start writing your business plan, you should already have some tentative agreements with cannabis product distributors in place. State regulators require you to report sales transactions to them through a seed-to-sale tracking system, so you’ll need to prove your processes support that. Choosing integrated software options makes this significantly easier.

Inventory

Additionally, both investors and regulators want to know that you have processes in place for labeling, packaging, and tracking cannabis products accurately. It’s vital you stay informed of evolving state or province laws concerning cannabis inventory management and record-keeping to make sure the processes you define are compliant.

Security

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 right now. Demonstrate your dispensary is secure enough to prevent cannabis products from being diverted to the illicit market or falling into the hands of minors. Expect to spend the bulk of this section describing your security infrastructure.

5. Organizational structure

This is the section that describes how the dispensary will operate and introduces the individuals responsible. You will also have to list investors and other stakeholders, along with their backgrounds and experience.

Both investors and regulators have a vested interest in knowing who you are. You should use a small graph or organizational chart to describe who owns the company, who manages it, and who is responsible for all of the company’s various departments.

Jobs to hire for at a cannabis dispensary

At the minimum, you should consider appointing a general manager and a compliance officer, as well as several reliable, entry-level budtenders or product educators. Additional management-level positions can be considered as you scale—this can include inventory specialists, purchasers, marketers, and accountants.

Nobody will expect you to have all of these positions at this point in the process. But they will expect to see how your leadership team plans to fill those positions with competent and trustworthy employees. Outline the chain of command between positions and include salary information here, too. This will help regulators and investors understand who makes decisions in the company.

6. Financial projections

Although every element of your business plan is crucial, the financial component of the plan will likely receive the most attention—and the most scrutiny. If you’re seeking outside investment, you need to show exactly how you plan on spending your invested capital. You’ll also need to identify a funding goal and break it down into itemized purchases that help sustain your dispensary until it reaches self-sufficiency.

Here are some of the expenses you’ll need to include*:

  • Licensing fees. States and provinces will charge anywhere from $5,000 to $60,000 to apply for a retail cannabis license. You should consider application feesand renewal fees as well.
  • Rent. You should plan for at least six months of rent to be paid for through your financing vehicle.
  • Building improvements. Your planned location will likely require some renovation to providecustomers with a positive experience. Plus, you might need to build secure storage areas for cash and inventory—often a vault or lockable, sealable door. If you plan to store clones on-site, you must follow appropriate lighting rules to keep these immature cannabis plants healthy.
  • Vendor inventory costs. Unlike distributors who typically house and move products for brands, a lot of dispensaries will purchase products directly from the wholesale brand itself. Stocking your shelves this way costs less upfront in a lot of states where vendors accept consignment deals or net 30-net 60 loans. This can give your business the time to sell the product and pay off the vendor within 1-2 months.
  • In-store equipment. Your dispensary will need professional display cases, furniture, equipment, and office supplies. You might also want to install speciallighting, unique artwork, or plants that help beautify the space and establish your retail brand before opening.
  • Compliance and retail management platform. Don’t forget to equip your staff with your state’s regulation program, as well as a compliant point of sale and inventory management solution. (We’re biased, but we think Dutchie POS is a great choice!) You should also consider an ecommerce solution for online retail management that casts a larger net for sales and connects with compliant payment solutions. Dutchie Ecommerce offers management tools for pickup, curbside, and delivery orders (based on what’s permitted in your region).
  • Product packaging and labeling. You may need to purchase a professional label printer and a variety of other specialty supplies in order to package cannabis in a compliant manner. You will also need to source child-proof exit bags for customers and a heat-sealer for wholesale flower.
  • Security expenses. Security can include anything from several guards’ salaries to a sophisticated 24/7 cloud-enabled video surveillance system. In most cases, your area’s cannabis laws will specify exactly what kind of security infrastructure your dispensary needs. Expect security measures to add significant costs to your budget.
  • Salaries. Your financial plan needs to include salary data for every employee you plan on hiring—yourself included!

Once you’ve calculated exactly how much money it will take to fund your dispensary, the next step is developing a plan for paying back your investors. You’ll have to predict your monthly operating expenses as accurately as possible. Legal fees, employee salaries, building maintenance, and sales expenditures should all be included in 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.

Finally, include a cash flow statement that breaks down the timeline of funds coming in and going out. This is especially important for U.S. cannabis dispensaries due to lack of financing. While U.S. customers still cannot pay for cannabis products with their credit cards, retailers have found success working with a variety of financial institutions (FIs), including state-level banks and credit unions. These institutions have documented audit processes and will work with the different regulatory bodies to ensure all parties remain compliant.

7. Appendices

This section will store your monthly income and revenue statements later on. Appending these statements to your business plan will help regulators and investors understand how closely you’re following the initial plan you presented to them.

Remember: compliance is key.

Download our 8-Step Guide to Opening a Cannabis Dispensary to learn more

Now that you understand the fundamentals of the business plan, you’re ready for the whole process from the plan to the application. Ready to dive in? Download our eBook, Opening a Dispensary: An 8-Step Guide to Success.

About the author
Dutchie
The Dutchie Squad