A 10-Step Guide to Opening a Weed Dispensary and Keeping It Open

For starters, don't call it weed.

You have a vision. You’ve collected some cash. You love pot and know everything about it. Now, this coming weekend, you can open a dispensary, right?

LOL … Not exactly. Just consider these things first:

· Some states perform background checks before granting licenses; felons and anyone convicted of a drug-related crime are banned from operating a marijuana retail business.

· Selling weed for cash is inherently risky; you’re prone to security threats, government raids, and being shut down due to complaining neighbors.

· Marijuana carries a stigma. Future employers may frown upon your involvement in the cannabis industry.

· It’s unlikely you’ll turn a profit for the first six months in business.

On the plus side, ArcView Market Research, a weed-focused investment and research firm, projects the legal-cannabis industry will grow 25 percent in 2016, amounting to around $6.7 billion in total U.S. sales. Virtually all of that marijuana will reach its end market through dispensaries.

How to grab a piece that dispensary pie breaks down into 10 steps:

1. Enlist the help of a legal professional

Marijuana laws vary greatly state by state, local jurisdiction by local jurisdiction. Legal fees may be steep, but an adept lawyer is worth the investment. Don’t spend hundreds of thousands of dollars and endure the whole tedious process of opening a dispensary only to learn your business is operating outside the law. The store could be shut down; you could go to prison.

Attorney Bruce Margolin, president of the Los Angeles chapter of the National Organization for the Reform of Marijuana Laws, conducts free seminars once a month on how to become legally involved in the cannabis industry—the next one is on May 21 from 2 p.m. to 4:20 p.m. at his West Hollywood office.

“We want to provide this information to people, so basically they don’t get in trouble,” he tells The KIND.

Image via Sweet Leaf Yoga/Flickr

2. Really understand state and local laws

Kellen O'Keefe, vice president of business development at MedMen, a marijuana licensing and management company, says acquiring the proper licenses is the No. 1 challenge when opening a dispensary. That, and "the influx of competition and capital fighting for a seat at the table.”

In California, medical marijuana is taxed, and requires a State Board of Equalization permit to sell. But unless a dispensary is granted an operational license by the jurisdiction in which it’s located, the permit won’t hold any significance.

The game is to stay on top of the laws before they get on top of you.

Los Angeles, for instance, currently recognizes only cooperatives and collectives that are “pre-ICO,” meaning they were legally registered before September 2007 when an ordinance enacted by the city banned any new dispensaries.

“Los Angeles has a moratorium because they want to see how things flesh out,” says Margolin, but plenty of California jurisdictions are issuing licenses, including Desert Hot Springs, Coachella Valley, Santa Rosa, San Francisco, and San Diego.

Some weed-legal states, Alaska and Hawaii in particular, don’t allow marijuana retail businesses. It’s worth checking the National Conference of State Legislatures for the breakdown of laws in each locale.

The game is to stay on top of the laws before they get on top of you.

3. Seek out a location that complies with federal and local zoning laws

Attorney General Eric Holder, in 2013, told the states that they could regulate and implement their own marijuana laws. However, businesses must abide by a set of guidelines, including not growing pot on federal lands or near schools attended by children.

The feds have failed to fully keep out of state pot business. Nevada cooperative owner Patricia Albright appears to have been complying with state laws, but was arrested on federal charges anyway. Technically, the United States government can bust any dispensary owner-operator-employee in the land at any time.

Image via Neon Tommy/Flickr

“Discretion is entirely up to the attorney general,” says Chris Lindsey, a legislative analyst for the Marijuana Policy Project. “If they target somebody, there are really no legal defenses.”

If you’re willing to abide by federal government regulations, the next step is find a location that’s in compliance with local restrictions. Those include everything from not operating within 500 feet of a residential area, and 1,000 feet from a park or library, to 250 feet from a head shop.

“There are never guarantees,” says Matt Stern, principal officer for the dispensary Nature’s Treatment of Illinois, a client of the cannabis consulting firm Pineapple Express. “We could be closed down and thrown in jail tomorrow depending on the political winds. This was the chance we all knew we were taking.”

4. Figure out finances

Most businesses have the option of securing loans from banks. For the marijuana industry, banking isn’t usually an option. Stern says one of the greatest challenges in opening his dispensary was financial institutions refusing to take his business on as a client. The option of financing wasn’t available, nor were checkbooks to pay contractors.

Some marijuana retail businesses in Oregon, Colorado, and Washington have encountered banking luck with small, independent financial institutions.

“I believe this is a melting ice cube of a problem,” says O’Keefe of MedMen. “In November, we expect California, Nevada, and Massachusetts to pass full adult use, effectively opening the flood gates and forcing both the federal government and financial institutions to reevaluate their position.”

Costs of opening a marijuana business differ depending on the county and city in which you plan to operate. Startup investment averages between $250,000 to $500,000. This sum can include everything from securing insurance and a storefront to cultivation. Some entrepreneurs have reported shelling out as little as $40,000, according to a report by See Change Strategy, a financial think-tank. 

“You have to find the right partners,” says Matt Stern of Nature’s Treatment of Illinois. “People wanting to enter this business need lots of liquidity and the patience to wait things out.”

Hiring a certified public accountant would be wise. Navigating taxes and overall finances, including payroll, is crucial. Dispensaries— because they’re federally illegal—are at a high risk of being targeted by the IRS for audits.

5. Get trained in everything marijuana

Accompanying the rise of the marijuana industry is a rise in the number of non-accredited college-like courses being offered to cannabis enthusiasts aspiring to open their own business or become familiar with the trade.

Many dispensaries cultivate marijuana on site. Doing so, you should learn, comes with increased legal and health risks. Marijuana, like other agricultural crops, is subject to fungus, mold, pests, and low-yield harvests. Want details? It may be worth your time to enroll in a horticulture class.

“There are never guarantees. We could be closed down and thrown in jail tomorrow depending on the political winds."

Image via Dank Depot/Flickr

You also need to develop a good grasp of current products and trends. Once your dispensary is up and running, your continuing education will be in tracking what products your clientele likes and doesn’t like.

“Younger generations of smokers tend to prefer concentrates or vape products,” says O’Keefe of MedMen. "Older generations lean toward flowers and edibles.”

Figuring it’s smart to use data-driven technologies to its advantage, MedMen has developed exclusive software to improve operations and products.

“MedMen’s software is the first true seed-to-sale solution built by and for the operators of cultivation, production, and retail facilities,” says O’Keefe. “From genetics to the point of sale, we have the ability to track every imaginable data point and variable to provide management with actionable analytics.”

6. Keep a clean image

Selling people on marijuana is all about how you package it—branding. Whether to use marijuana or cannabis or neither in a dispensary’s name may sound trivial. It could be the difference between the community accepting your business or not.

“We don’t shy away from who we are,” says O’Keefe, “ so we do incorporate the leaf and other familiar images at times.”

But, he adds, “Words like dope, pot and even marijuana carry some negative connotations. We prefer to use cannabis when possible.’”

It’s also necessary to remain on good terms with neighbors: Carry out operations discreetly and be candid with law enforcement and local government about your intention to comply with all rules and regulations.

If your business deals in medical marijuana, find a physician to sit on your board of directors.

“[Doctors] are not usually on site, but are there to make sure patients are being treated according to protocol,” says Robert Calkin, president and CEO of the Cannabis Career Institute. “It provides assurance to the community, too, that it’s not a drug-dealing shack.”

Image via Chuck Grimmett/Flickr

7. Regulate membership/clientele

In medical marijuana states, patient applications should include the name of the recommending physician, his or her contact information, and the personal information of the client. It’s crucial to make copies of everything: ID cards, doctor referrals, and the application itself. Patients must be warned that selling or sharing any marijuana products purchased from your store is banned.

In recreational marijuana states, dispensary employees must check the IDs of customers to make sure the consumer is at least 21 years of age.

8. Spread the word about your business

The marijuana industry doesn’t have the wealth of marketing options. Facebook and Google, for example, don’t allow or restrict ads by marijuana-focused businesses.

But an influx of 420-friendly sites and apps has accompanied the rise of the marijuana industry. Consider adding listings to sites like WeedMaps and Leafly, and advertising at the offices of doctors providing marijuana recommendations.

Don’t discount the power of word-of-mouth. Hiring friendly and knowledgeable customer service reps, and consistently carrying top-of-the-line products, are key to your business growing naturally.

Image via @therootcellars/Instagram

9. Stay safe

Meticulous record-keeping is a dispensary-owner's best friend. Track expenses and products, who interacts with the products during the cultivation and processing stages, the patients who buy. It may sound over-the-top to keep profiles on your clients and to follow marijuana from seed to sale, people end up in prison for failing to do so. Remember Patricia Albright?

10. Enjoy the buds of your labor

You’ve realized your dream; now watch it grow. If you encounter success, consider taking it a step further by opening more dispensaries or consulting—the market for consultants could be huge in coming years.

“People are realizing that this can be a legitimate lifetime career,” says Calkin, president of the Cannabis Career Institute. “Before it was a side project you couldn’t tell anybody about. There are now paid positions, and that wasn’t the case before.”