Opening a Cannabis Dispensary in your state may be expensive. This is due to security costs, capital requirements, licensing, consulting, and legal costs. These costs continue into your company’s operations.
Cannabis is still federally prohibited. Opening a dispensary license depends on the state. Each state has different requirements.
- Be prepared and make a great team and business plan and get the right advisors and resources for your success.
Experts believe the cost for opening a cannabis business in Illinois will vary. A dispensary can range from $400,000 to $1,000,000, and a craft grow from $6.5 million to $10 million. These costs depend on the location and size of the build-outs.
- From state to state, each is a bit different, but if you want to open a dispensary or grow in Illinois, the regulations and a limited number of licenses put up the cost more so than in non-competitive states.
How much does it cost to open a dispensary in Illinois?
Here’s a brief Summary of the startup Costs to open cannabis dispensary, or craft grow in Illinois:
- Statutory Application Fees
- Application Compilation Costs
- Legal Fees
- Cannabis Lawyers and Consultant Fees
- Accountant & Other Professionals Fees
- Insurance premiums
- Community Outreach Costs
- Adequately Capitalized Requirements
- Real Estate Build out & fixed rental costs
- Flower & Inventory costs
- Renewal Licensing Fees
- Taxes (IRC 280E)
- Ongoing Professional Fees
Licensing fees for your cannabis dispensary
These are the most straightforward of all your costs – the fees you pay to the state of Illinois, New Jersey, Ohio or wherever you want to open. They are provided by statute and have one number. It is easy to include cannabis business costs in your budget. This is just the beginning, though. Opening a dispensary requires many investments, including application fees. Here are some examples of application fees that may apply to open your dispensary.
- $250 non-refundable social equity lottery application fee.
- $60,000 registration fee (renewable for the same amount every two years.)
Startup Costs & the Location of Your Cannabis Dispensary
Real estate is all about location, so where you open your cannabis business matters. Rent, as a cannabis business cannot bank a mortgage for their real estate, is the prime driver of a large budget item for your cannabis business.
Compliantly zoned Cannabis real estate is often referred to a “green zoned”
The square footage of your dispensary will impact your double-taxation under IRC 280E, and also your rent costs. While growers do not get hit with IRC 280E, they need to build buildings inside of buildings for closed-loop systems if they want to maintain the highest quality product.
This makes it increasingly difficult for cannabis businesses to stay competitive in the market and can put them at a significant disadvantage when compared to other companies in the same space. Additionally, the requirement of being compliantly zoned significantly increases the cost of rent and real estate for cannabis businesses, adding yet another financial burden for these already overburdened companies.
You need to budget for and imagine your cannabis business very precisely, with the help of talented designers and architects, to determine not only your startup needs but also your day-to-day operating costs.
How much to open a dispensary as a rental tenant?
Expect a premium on the market rent and possible zoning issues. Fortunately, dispensaries in Illinois have six months from the award of their conditional use dispensing license to provide the state its address.
Additionally, security issues regarding the location of your real estate should be explored and spoken about in your application because security is a big point under its scoring. So are the build-outs and security features required to be integrated into your dispensing or craft to grow the business, which is not so stringent in west coast states.
Furniture, fixtures, and equipment (FF&E) costs in Illinois run higher because of the exacting level of security built into the law to prevent diversion of cannabis from the supply chain, or robberies of the cash-only adult-use cannabis business.
The Application for a Dispensary
Consultants will help you put together your cannabis license application, business plan, financial plans, security plans, social equity plans, and numerous other things. The completed application will resemble what was known in the 20th Century as a “Phonebook.” The phrase means that the stack of papers from a high-scoring application will be great, perhaps into the hundreds of pages.
The reason for the length of the application has to do with promises that your cannabis business is making to the State of Illinois (and your own state if you are somewhere else) on its application.
Upon the award of a license to grow or dispense cannabis to your business, then all the terms and conditions and promises regarding your cannabis business that you made in the application actually become requirements for operating your business!
Your application requires employee training policies, public outreach plans, security design and protocols, sophisticated corporate operations, ownership, and financial contracts, and the important record-keeping systems and procedures employed in growing or selling the adult-use cannabis.
No other business has so much pre-planning that goes into being awarded the license to open its doors.
If you have ever heard any business owner complain about overly burdensome regulations, ask if they are in the cannabis business.
What’s the cost of opening a dispensary or another cannabis business?
The cost of a cost of cannabis business application can be hundreds of thousands or millions of dollars and will be more fully outlined below. The important thing that your business can do when taking on the risk of applying for its license is to at least buy a good application.
For a successful cannabis business to operate, state licensure is essential. All cannabis retail locations must have both state and local licenses in order to be compliant with the law. These licenses are expensive and hard to acquire, requiring detailed applications and record-keeping. Once acquired, these licenses also require additional fees for renewal every year.
State licensure also requires dispensary owners and store managers to comply with various laws that are specific to each state. Additionally, it can be hard for dispensaries to access traditional banking services due to Federal laws regarding marijuana businesses. Credit unions have been one of the few sources of financial assistance that offer fair loans on reasonable terms; however, these too come with associated costs that are typically passed along to the end customer.
As such, dispensary owners must not only consider their marketing plans but also how they will finance their operations if traditional lenders won’t work with them. Having a comprehensive understanding of all the associated costs and paperwork involved in acquiring or renewing a license from year-to-year is key for proper financial planning for any cannabis retailer.
If Illinois becomes like Colorado the number of licenses for dispensaries and craft grow will need to roughly triple over and above the current statutory maximums, which means people just like you will need to continue to lobby the State to update and amend the law for more players.
A Cannabis Business (Team) Plan Can Control Startup Costs
Who’s your operator? As you may have heard me say before on Cannabis Legalization News (Wednesdays @ 2 pm CST), the cannabis industry is a team sport – there are so many angles from which your company can add or extract value from the plant. When drafting your business plan, use this team mentality when combining: your culture, your key legal, tax, security, and operational advisors, your investors, and of course your customers.
Illinois adds a new wrinkle to the traditional cannabis business plans from other adult-use states – social equity. You can use the social equity goals to open the cannabis industry to those most negatively impacted by the drug laws of the past 80 years. Perhaps your cannabis company will make a plan for employing 10 full-time social equity applicants so that your business can proudly be recognized as helping accomplish the state’s objectives in its new adult-use law.
Of course, the business plan should have traditional revenue and expense projections, and an experienced financial planner or CPA with previous retail, and hopefully cannabis, the experience will get your company its most reliable figures. Cannabis business plans, unlike plain-vanilla business plans, often need to address aspects of the business arise from regulatory compliance.
For example, you will have compliance costs to ensure your operations comply with the new and evolving laws in its operations, and how those are addressed by software or human resources can be detailed.
Our cannabis lawyers think it is a good rule of thumb to look at how the State is scoring the applications for the cannabis dispensary or craft grow licenses and speak to each aspect of them directly when answering every element required by the application, with detailed plans and descriptions of why your business is the right candidate for the job of licensed cannabis craft grower or dispensary.
Costs for your Cannabis Dispensary Employees
Managers of dispensaries have to keep the business running smoothly and compliantly. They have to deal with employees, customers, vendors, state regulators, owners of the business, and perhaps even investors. They are in demand because of the scarcity in the industry, but consultants estimate that for a dispensary, annual staffing costs can run into the quarter-million dollar range. Don’t take our word for it, here’s a picture from COVA on costs.
Source – Cova Software.
Any dispensary owner should be aware of the estimated costs associated with opening and running a cannabis dispensary. From hiring employees to complying with state regulations, the cost of running a cannabis dispensary can easily run into the quarter-million dollar range annually. While it may sound daunting, dispensaries need to plan carefully and budget accordingly in order to remain successful in this competitive industry. By doing so, they can ensure their dispensary meets all regulatory requirements while providing an enjoyable experience for customers.