With medical cannabis undergoing widespread legalization, both investors and entrepreneurs are clamoring to be the first to establish themselves in this exciting infant industry. However, going first is not always best. Here are 7 things that should be considered, before one takes the plunge into dispensary ownership!
1 – Your interest in cannabis.
Much like starting any business, you should have a passion for the industry before diving in. This doesn’t mean you have to be a regular smoker, or even partake – yet the cannabis industry and its evolution should be something you are excited about.
It is hard work to start a cannabis dispensary. It will take a lot of time, resources, and commitment to see it through conception to success. You will be more prepared for the long haul and motivated to stay on top of ongoing developments if the cannabis industry is your thing.
2 – The laws governing cannabis in your location.
When considering opening a cannabis dispensary in either Canada or the United States, choosing the location you wish to set up in is key. The state or province you live in will determine whether or not you are legally permitted to open a cannabis dispensary and the unique requirements and licenses for you to open one. For example, as of 2022, thirty-seven out of the fifty US states allow medical use of cannabis.
Because cannabis is a Schedule 1 controlled substance that is not allowed for medical or recreational consumption by the United States federal government, there is no universal federal legislation overseeing its production and sale. As a result, the responsibility to decide these things has been left to the legislatures within the states. In some states like California, each city has the right to make its laws. Less than a third of all the cities in California allow medical-use cannabis business within their borders.
3 – Your understanding of the industry.
It is crucial that you take your knowledge of the cannabis industry into account before you decide to open a dispensary. Have you ever worked for a cannabis dispensary or retailer? Are you familiar with the ins and outs of the trade? If not, are any of your partners experienced in the cannabis retail industry? While it is not impossible to run a successful cannabis dispensary without any prior experience in the cannabis industry, there is a steep learning curve ahead if you find yourself in that situation. The best thing to do is to surround yourself with a team of experienced partners that can bridge the knowledge gap and share best practices with you.
If you have prior experience in the industry, then make sure you identify ways to leverage that experience to create a better product, brand, and business model for your dispensary.
4 – Your experience in retail.
If you don’t have any prior experience in the cannabis industry, then the next best alternative is some experience in retail. Because dispensaries are retail outlets for medical marijuana, the basic rules of retail are mostly the same, and best practices can be carried over from retail to running your own cannabis dispensary.
This crossover between operating a dispensary and a mainstream retail outlet means that those with retail experience are better suited to handle the demands of running a cannabis dispensary. For example, if you have experience in sales and marketing, then you can deploy your tried and tested lead generation tools and strategies, as well as lead conversion, to generate sales from your leads.
5 – Your ability to raise capital.
Starting a new business can be a very capital-intensive process, regardless of the industry you are in. However, starting a cannabis business is even more capital-demanding than most. Due to the high level of regulation governing cannabis retail, there are many expensive licenses and permits that cannabis entrepreneurs have to acquire before even setting up. This high cost of entry into the industry means that you have to raise capital very quickly and creatively.
Because cannabis business is not legal on a federal level in the United States, cannabis businesses like dispensaries cannot access financing from mainstream lenders like banks and other financial institutions. Financial institutions are not allowed to finance companies that are not legal under federal law. While the SAFE Banking Act seems set to change that, it will take time before state regulations and financial service providers adjust to doing business with the emerging cannabis industry.
As a result of this limited access to structured financing from banks, many dispensaries and other cannabis businesses have opted to sell equity to raise the necessary capital. The bottom line is that you have to be able to raise capital before you open a cannabis dispensary.
6 – Your ability to qualify for a license.
Just because your state and city allow cannabis dispensaries to open up doesn’t mean that you automatically qualify for a license. It is crucial that you determine whether or not you are eligible for a license in your area before you incur any significant expenses on behalf of your dispensary.
There are no universal criteria for either awarding or rejecting an application for a license. Every state and local government has its own set of requirements and ‘red flags’ that will automatically get an application rejected. For most states and provinces, the applicant for the license has to be a legal resident of the state or province they are applying for a license in. The applicant must also have a clean criminal record, but there are some curveballs.
For example, in BC, any involvement with organized crime is considered a red flag that will earn an applicant an automatic rejection. In Washington, the state also requires a background check for the spouse of an applicant.
7 – Your risk appetite.
Every entrepreneur knows that there can be no profit without incurring some risk, however, there are several reasons why cannabis businesses are a lot riskier than the average business.
Firstly, the cannabis industry finds it disproportionately harder to raise capital and access financial services than other industries. This makes cannabis businesses high-risk ventures that are doomed to fail unless they can keep raising capital.
Next, the cannabis industry still faces an uncertain legal future as politicians in every state contend with the question of whether to legalize cannabis or not. Given this high volatility in the industry, you need to accurately assess your risk appetite and comfort before deciding to open a dispensary.
In conclusion,
If after all of this all signs point to go, then congratulations, your journey to take the step into the cannabis industry has likely begun.
We wish you the very best in the next step on your journey of understanding how to open a dispensary.
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