So You Wanna Be a Cannabis Star

Today is 420’s biggest celebration yet. With it comes lots of hype for the industry triggering dreams to get a piece of the action. Wise people often say that working while doing something you love is a key factor in a happy, fulfilling life. For many cannabis aficionados, that dream is to open a dispensary.

Launching a Canna-Business Requires Deep Pockets

Operating a marijuana dispensary can be like any other type of small business. However, getting it started can be much more expensive than you think, because of certain state regulations and other financial hurdles to overcome that don’t exist elsewhere.

Before you even sell your first gram, you must spend a good amount of money just to get a green light to open shop. One of the first steps in opening a dispensary is applying for a license and permit. While these fees vary from state to state, an accurate expectation would be to spend about $12,000+ on this piece alone. And it’s best to have an experienced professional do it for you, adding to the cost.

Finding a retail space that will allow a dispensary to operate on the premises is only half the battle, as you also need to find an area that has good visibility and ideally high foot traffic. Annual real estate expenses might run $100,000 plus the one-time cost of remodeling the space to your liking. The latter is likely to be your biggest start-up cost.

Once you’ve passed through the first set of monetary hurdles, you’re in a good position to become operational. Before opening day, remember that you’ll need a full Point of Sale and tracking system, a security system, and inventory to sell. POS contracts vary in price. They are an important part of your daily operations, and a big part of your operational costs. And stocking your shop with quality product should run at the rate of $1,800 per pound. Plus all the other processed plant products and other accessories. You better buy a lot.

Operational Costs High for Great Customer Experience

To run any business successfully, your employees must be capable and trained. The size of your shop will certainly dictate how many people you need on staff. Let’s assume you have a few quality budtenders, a supervisor, security and a store manager–you can expect your annual payroll to run close to $370,000 if you’re paying them at industry rates.

Other operational costs include your advertising budget. Depending on your location, and how many competitors you have, this could run up to $25,000 in a major market. It’s required to have insurance and a relationship with an attorney that specializes in Cannabis. Given that the cannabis industry is vulnerable in many ways, these annual costs will approach $50,000.

The Banks Aren’t Playing Along Yet

Marijuana dispensaries fall into a gray area in the business world, as they are technically illegal from a federal standpoint. Because of this, many banks don’t want to transact with a dispensary for their initial investments as well as their day to day needs.

To get around the issue with banks, owners will do business with credit unions or even private marijuana banks if they’re present in the area. This, too, comes with a cost. These organizations realize you might not have any other choice, and they can (and do) charge holding fees of about $2,000 per month.

And when applying for your license and permits, you must prove that you have enough capital to remain a viable company in the industry. Some states don’t require that you have any assets at all, but others like Pennsylvania stipulate that you have $2,000,000 in assets with at least $500,000 of it in liquid cash.

Preparing for Uncle Sam & Aunt Mary Jane

Are you overwhelmed yet by the true cost of opening a marijuana dispensary? There’s one final piece of the puzzle, which again varies dramatically from state to state. TAXES!

Most of the discussion about compliance in the cannabis industry centers around the product as it pertains to the quality, strength, and other regulations placed upon it. Rarely is there discussion about tax compliance, a costly and highly regulated part of the the business. Of course you have to pay specialty cannabis Taxes, but tracking and preparing the documents is specifically hard.

In California particularly, the tax code is chaotic. The code continues to evolve as tax jurisdictions work out the kinks. Staying on top of the tax code, with the ability to calculate, store, and file your cannabis taxes in a compliant manner can be an arduous and costly process in itself. Currently, dispensaries rely on difficult manual processes at POS (time consuming and human error involved), and use expensive accountants to extract and file the correct returns.

A fully automated system of calculating, storing, and filing all cannabis taxes along the product chain with compliance is exactly what the industry needs to stay tax compliant. Taxnexus delivers automated, transaction-to-treasury tax compliance services to the cannabis industry. In the crazy realm of cannabis taxes, from chaos comes clarity with Taxnexus.

Cause and Effect, Herb vs. Munchies

When it’s all said and done, the average cost of all the aspects we’ve mentioned is between $250,000 and $750,000. Less than it would cost to open a McDonalds, with a profit potential to greatly exceed any franchise opportunity. If you are fortunate enough to have lined up the investors, a bright future awaits. But if the process and cost outlined above put fear in your heart, consider being a vendor of munchies.

 

By Eric Stone
Taxnexus Product Representative
(April 20, 2018)