With the legalization of cannabis sweeping the nation as state after state changes laws to accommodate the lawful sale of weed, many people are considering the lucrative potential of opening a dispensary.
While it’s true that the profits of a cannabis dispensary can be exceptional, the cost of getting off the ground can be enormous. Let’s take a look at the costs versus profit potential of legally selling marijuana.
Profit Potential
According to Gateway Proven Strategies, the average cannabis dispensary generates $974 annually per sq ft of space. Other data firms place the figure higher at more than $1,000 per sq ft annually. It varies somewhat from state to state and the quality of each location.
This translates to a robust net profit margin of 15% to 20%. Compare that to the profit margin of the average restaurant, which is 3% to 5%. A hardware store can expect to generate a 6.7% to 8.9% profit margin. Furthermore, retail sales of cannabis in the U.S. market are expected to top $40 billion in 2023, reported MJBizDaily.
In the U.S., dispensaries average $1.2 million to $2 million in gross revenue annually. A conservative estimate of a 12% profit margin means that a business bringing in $2 million would net the owner $240,000 per year.
Start-Up Costs
While there’s little doubt a cannabis dispensary can deliver significant cash flow and excellent profit margins, getting started requires a hefty investment. Cannabis entrepreneurs will need to secure large capital investment resources to ramp up.
License
The first major expense is obtaining a license. This cost varies greatly from state to state but can be as high as $10,000. The average among current legal states is $5,000. In some states, it can be as low as $1,000.
Real Estate
Next, the location of a dispensary is a key element of success. The two options for securing a location are renting a space or buying a facility. The average purchase price for a business in this category ranges from $128 to $393 per sq ft. Renting can cost from $3,500 to $10,000 a month.
Whether purchased or rented, a cannabis dispensary must then be set up with the equipment to conduct sales, such as check-out counters and machinery, office furniture, shelving, displays and other elements of “kitting out” the store. Here are some average costs based on type of location:
• Strip mall location: $500,000 to $850,000
• Free-standing building: $350,000 to $1 million
• New Construction: $900,000 to $3.5 million
• Renovate existing building: $600,000
Overhead Costs for Operation
This is the cost of doing business, such as paying employee wages, lighting and heating the dispensary building and more. The owner will also need the services of professionals, such as accountants, attorneys and bankers. In short, all of these elements average about $50,000 in overhead costs per year.
Product Procurement
Cannabis sellers also need to procure their products from suppliers. Many opt to grow their own. However, owning a cultivation business in addition to a dispensary means managing two businesses.
he other option is to purchase from a supplier. That ranges from $500 a pound to $1,500 a pound.
The Bottom Line
Opening a cannabis dispensary is a promising business venture with positive signs for the continued spectacular growth of the industry long term. Profits margins are excellent, but working toward that first day of a “Grand Opening” will require raising very significant amounts of start-up capital.