5 Things You Need to Know Before Opening a Dispensary
When Colorado first legalized recreational marijuana in 2014, it opened the doors for new entrepreneurs to capitalize on the budding industry. In the past four years, many new stores have opened, numerous products have been created, and more businesses continue to emerge and flourish-- generating more than $1.5 billion in revenue in 2017, according to the Colorado Department of Revenue.
To date, there are more than 500 dispensaries spread across Colorado-- more in Denver than Starbucks, McDonald ’s, and 7-Eleven stores combined. But while many of these dispensaries are thriving, a good handful of them are generating revenues far below the industry average.
The question is why? Being in the early stages of legalization, the nascent cannabis industry is alluring many to cash in on the so-called “green rush.” Heck, that’s why I launched my dispensary, Green Man Cannabis, nine years ago. But this industry offers unique challenges to entrepreneurs you might never expect. Here are some of the top things you need to know before diving in and opening your own dispensary.
1. Just because you smoked marijuana for years or ran a business, doesn’t make you an expert.
I entered the cannabis industry with all the confidence in the world, having more than a decade of experience as a successful serial entrepreneur. Because I wasn’t new to smoking marijuana and running a business was second nature to me. I figured: how hard could it be?
Answer: Pretty darn hard. I’ve lost millions due to costly mistakes, missed opportunities, and outright failure of some ideas. Had I sought counsel from the start, many of these errors could’ve been avoided.
When it comes to accounting, taxes, security, compliance, insurance, banking, legal protections, marketing and government affairs, there are special considerations unique to the cannabis industry. I can’t emphasize to newcomers enough that you need to partner with the right people who have a deep amount of industry contacts and have actually owned, operated or worked with a successful dispensary or grow. You can't just hire any old accountant. You need an accountant who has already been through an IRS audit or two with a marijuana company.
2. Attaining a dispensary license is tough.
Most applications are merit-based and require an ability to demonstrate that you are going to be a good operator. This means that people on the application should have industry experience or must show that they have the ability to execute a well-thought-out dispensary business plan, primed for success.
Again, you can't do this on your own. If you are new to the cannabis industry, you’re going to want to seek expert counsel to gain the necessary insight. Throughout the application, you are asked to demonstrate and have answers to tough questions surrounding the operation of the business. For example, you need to share how you are going to handle security and how you are going to handle product storage. You need to have real, legitimate answers or you won’t win the license.
3. You need significant capital and patience.
If you are in a state that’s new to legalization, whether its medicinal-only or also recreational use, you need to temper your green rush enthusiasm. It's fine to remain optimistic, but you also need to be realistic and pragmatic in your approach.
It may take a few years before new markets get their feet on the ground. The rollout can be significantly delayed or enrollment of medicinal patients could be much lower than expected. I’ve been part of legal cannabis businesses in nine states, shortly after each of them first legalized marijuana, and one of these scenarios I just mentioned has happened in seven of those states.
A lot of people think they are going to get rich quick, they're wrong. You are not going to be an immediate cash-flow business. Plus, you need about half a million dollars or more to fully launch a dispensary.
4. You CAN get a bank account
I just got kicked out of another bank this morning. In my nine years in the cannabis industry, this is the ninth time I’ve been kicked out of a bank. Sometimes my relationship with the bank is good for a year or two, and sometimes I'm seeking a new banking partner every few months. You really become a persona nongrada to the banks when you operate in the cannabis industry.
But, banking IS possible. I’ve been able to bank successfully in several states, and haveonly operated in cash for two years.
In order to secure a bank account, you need to find those few banks that identify themselves as willing to bank with cannabis businesses. Don’t bother with big banks like Wells Fargo or Chase; they’re not going to touch your business. You need to look for smaller credit unions and regional banks.
Ideally, they are already open about their willingness to bank with cannabis accounts. If not, be honest with them about your business. There’s a fine line you need to walk, if you don’t want to get kicked out of a bank, but it’s more important to be truthful.
And, know that they might accept your dispensary in the offset, but a few months later decide they need to cancel your account. It happens. We were kicked out because they just decided that they couldn’t touch our money because it will void their FDIC insurance. Got it. Now, onto the next.
5. Few vendors want to work with you
Since cannabis is not federally legal, many suppliers are wary of working with businesses in the industry. They fear it could hinder their reputation or get them into trouble. You’ll find this with nearly every type of vendor your dispensary could need.
To combat this, you can do two things: work with someone who has been in the industry for years and has vetted connections they’re willing to introduce you to or be upfront with the supplier. In order to run a successful dispensary, you need to be compliant and profitable -- in that order. Part of compliance is being truthful. Lying is not complying.
Don't let all these factors dissuade you from getting into the cannabis business. The momentum is on your side. More states are legalizing recreational and medical cannabis each year at an accelerating pace. As this continues and the public’s perception of the nation’s most controversial plant normalizes, I believe the marijuana industry could be seeing revenues nearing $300 billion annually.
You just need to be smart and seek the right partners to help you compliantly and profitably realize your vision of becoming a cannabis entrepreneur.