14 min read
How Much Does a Dispensary Owner Make?
Recreational use of cannabis was seen as a crime for many years. Even its use in medicine was forbidden in lots of countries. Luckily, we think differently today, and many states in the U.S. have legalized cannabis. The same applies to many other countries across the globe. Not only has this decision given people the freedom to relax and enjoy their cannabis as much as the law permits, but it has also opened a chain of businesses for cannabis dispensaries, their suppliers, and many other people involved in the distribution network. But how profitable is this business? Is the green rush wagon worth joining? How much do dispensary owners make? We will discuss in detail how much dispensary owners make, the average dispensary sales, and how you can maximize your profit should you decide to go into the business.
Cannabis market overview
Even though cannabis is still classified as an illegal drug under federal law, 35 states in the US have legalized it. More states are expected to follow the trend. With that, the industry is booming. Data from the New Frontier indicated the cannabis industry was worth $13.6 billion in 2019. This is more than a 50% increase of the 2017 estimate that put it at $9 billion, and more than 100% of 2016 calculated as $6.7 billion. As of 2019, the industry has created over 300,000 jobs and has got patronage from more than 20% of the American population.
Marijuana Business: Licenses, Permits, and Planning
With the cultivation and sale of marijuana being forbidden by federal law, it is essential for anyone interested in the business to follow all the guidelines provided by the local authority. Also, they must have all the necessary permits. Even though these guidelines follow a similar pattern, each state has its own regulation. Some states like California established separate boards for controlling cannabis use while others put the regulation under the existing department. In most states, you must also hold a local license from the local authority.
Opening a cannabis shop in California may be a little more complex than in some other states. In California, you have to obtain three different permits if you want to go fully into marijuana cultivation and sales or get a license that applies to what you want to focus on. The California Cannabis licensing authorities include the Bureau of Cannabis Control, the California Cannabis Cultivation Licensing, and the Manufactured Cannabis Safety Branch. Apart from these licenses, you must also hold the local license from your area. In Alaska, you can submit an application for M.E.L. online. However, you will also need to submit documents related to your cultivating and testing facilities and get a marijuana handler permit. Similar to California, Maryland, Michigan, Oregon, and Washington have all established separate boards for regulating cultivation, sale, and use of marijuana in their states.
The Department of Health or Public Health has control over cannabis in states like Hawaii, Delaware, Maine, and Arizona. These departments authorize a limited number of organizations to handle marijuana. In some states, despite the legality of the business, applications to grow and sell cannabis are not accepted. Other states that have marijuana under control of their Department of Health include Massachusetts, Montana, New York, New Jersey, North Dakota, New Mexico, and New Hampshire.
Connecticut and Vermont put marijuana under control of the Department of Public Protectors. In Rhode Island you must approach the department of business regulation to get a license. Note that the states only accept applications during an open application period.
In Nevada, you must have a marijuana establishment license from the department of taxation before you can start a cannabis business, while the state of Illinois requires anyone interested in running a dispensary to obtain a license from the Department of Financial and Professional Regulations and those interested in cultivating weeds obtain licenses from the state’s Department of Agriculture. Unfortunately, the department only made 22 licenses available, and licensing is closed now.
How Profitable is the Cannabis Market?
Now let’s answer the question – how much does a weed dispensary make? Income from cannabis varies from state to state. Even within the same state and the same regulation, sales and revenue still depend on the market’s location and size. However, irrespective of your location and business size, it is likely that you will get a significant profit. So, how much do marijuana dispensaries make?
9 out of 10 dispensary owners confirmed that they make a good profit in this business, with about 40% of them generating more than half a million a year. More than a quarter of dispensary owners reported having annual sales of over one million dollars a year. Some even reported annual revenue up to 10 million dollars. Even dispensaries located in remote areas and classified as not doing so well still reported yearly sales above $100,000. Hence, an average dispensary income is surely hundreds of thousands, if not millions.
Cannabis on the Rise
Pew Research survey indicated that only 12% of the American population wanted Cannabis to be legalized in 1969, while the figure increased to 31% in 2000. Today 67% of the population is in support of the legalization of cannabis. This shows how much people’s opinion about cannabis has changed. With COVID-19 ravaging the country in 2020, more people sought consolation in cannabis. This also contributed to the growth of the industry while other industries were declining. A study carried out by the New York University showed that the use of cannabis by Americans aged 65 or more has increased seven times over the past ten years. Within the same period, its use increased three times among those between 50 and 64 years. The industry was worth $13.6 billion in 2019 and is estimated to generate more than $85 billion by 2030.
Nationwide Sales Increased
The pandemic that affected all states forced many states to go into lockdown. This drastically reduced shopping and sales of many items. Ironically, the sales of cannabis went up. The fear of being confined to one’s home and the need to relieve stress led many to purchase more cannabis. This increased the marijuana dispensary profits. Almost all states in America reported a significant increase in sales of cannabis in 2020 compared to sales of 2019. The growth was as high as 67% nationwide while some states recorded an even higher rise. California was among the states that recorded the highest increase in marijuana sales. It was estimated that cannabis worth $18 billion was purchased in 2020 in the United States.
However, the huge sale may not necessarily mean huge profit to the dispensary and growers of marijuana as rule 280E does not favor the industry and may take away the bulk of the profit in the name of tax. So, don’t be concerned only about how much a dispensary makes. Pay attention to the taxes they pay. But what exactly is the rule, and how does it affect the cannabis industry?
What is Rule 280E?
IRC Section 280E implies that a business organization can deduct the cost of running the business from its sale before paying tax on the net profit. However, this exemption does not apply to cannabis. All that will be deducted from your dispensary income statement before taxation is the cost of purchasing your stock. Hence, a dispensary must pay tax on all its sales, except the cost of purchasing the cannabis. This means if a dispensary has bought cannabis for $200,000 and sold it for $500,000, it has to pay the tax on the net profit of $300,000, irrespective of the money spent on a workplace, staff salaries, insurance, electricity, and other operational costs. If this cost has amounted to another $200,000, it means the dispensary is making a profit of $100,000 but is paying tax on $300,000. If the tax is anything around 30%, it may take away all the profit.
How much are dispensaries making?
Questions like How much does a marijuana dispensary make? are common among people interested in joining the industry. However, calculating the average dispensary profit may be challenging. Many factors must be carefully considered to decide the average marijuana dispensary profit. They include the size of the dispensary, the location, the scope of its operations, running cost, and the number of its regular customers. However, several reports indicate that most dispensaries are making a huge profit. Income from big dispensaries can be as high as ten million dollars a year. An average one can make around a million dollars a year, while small dispensaries usually make around $250,000 a year.
Of course, a dispensary profit will be proportional to its sales. The fierce competition in the industry has significantly increased the cost of running the business. Workers have huge salaries, and you need to make lots of publicity. Despite all these, the dispensary business is still considered to be highly profitable. It is estimated that the business typically generates an annual income of $974 per square foot of space. An owner that makes sales above 5 million dollars a year can earn a salary as high as $500,000 per annum, while the revenue of up to 10 million dollars will surely get them twice the pay.
How Much Does It Cost to Open a Dispensary in the United States?
Thinking of running a dispensary? Well, opening a marijuana dispensary is similar to starting any other small business, except that you may have to spend more on licensing in this case. The cost of obtaining a dispensary license will depend on the state regulation, but you can budget around $100,000 to $150,000 for it.
Once you get the license, the rest depends on your scale of business. Starting up capital will include the cost of stocking your products, the annual salary of your staff, rent, renovation of the rented place to comply with the regulations, insurance, and maintenance cost. On average, this cost could be anything between $250,000 and $2 million.
Cannabis Industry Jobs and Salaries
Just like any other industry, the cannabis industry needs many skilled workers with different specializations – growers, distributors, dispensary owners, dispensary managers, and budtenders. Let’s have a closer look at each one.
Before marijuana can be available for consumption, it must be grown. Therefore, the growers begin the chain of the business. These people are paid according to the quantity of cannabis they cultivate. Their salaries also depend on the state they are working in. On average, marijuana cultivators can earn anything between $50,000 to $2 million per annum. That is quite a decent amount to take home.
Cannabis chefs cook marijuana and other cannabis edibles. Interest in edibles is rising, and more chefs are joining the league. Salaries of marijuana chefs depend majorly on the size and status of their company. However, as a marijuana edible chef, you can expect to earn between $40,000 and $100,000 a year.
The income of dispensary owners depends greatly on the size of their dispensaries, so it typically varies between $500,000 and $2 million a month. This job might be easy for people with good administrative knowledge. However, you don’t have to worry about what to major in to own a dispensary. As long as you are interested in running a business, have the capital for it, and want to go into the cannabis trade, you can always be successful.
A dispensary manager controls day-to-day operations of a cannabis dispensary. In most cases, these are people who have previously worked as budtenders or in other sections of the dispensary and have a lot of experience in the industry. However, you can also learn on the job. A dispensary manager’s salary will depend on the size of the dispensary as well as its location. Typically, you can earn between $60,000 and $150,000 per annum.
Budtenders attend to customers. They must have good knowledge of different strains of cannabis. They should be able to guide customers in finding the best strain for them and offer tips on the use of cannabis. They must also know a lot about CBD and THC and the effects of different strains of cannabis on the body and mind. Luckily, there are many people with this knowledge. This makes the position competitive. A budtender should expect to earn between $30,000 and $45,000 in a year.
Factors That Influence the Success of Cannabis Businesses
Running any business requires having good knowledge of the industry. To run a cannabis business successfully, you must ensure you know what works in the industry and what doesn’t. You should know how much marijuana dispensaries make and how to maximize your profit. Doing a preliminary study of the industry before seeking a permit will be necessary. However, once you have started, factors that can influence your sales, profits, and success are your location, the number of customers you have, your relationship with your customers, and the kind of cannabis you sell.
If you are located in a populous area with lots of interest in cannabis, you should expect to have more sales than if your shop is in a remote location. Also, the way you treat your customers will determine whether they will come again or not. How you package your products, their quality, and pricing will all influence your success in the business.
How to Maximize Your Dispensary Profit Margin Despite Falling Prices
The competition in the cannabis industry has made the prices of the products fall. However, you can still maximize your profit. In this article, we will offer tips on how to maximize your revenue.
To maximize profit, you must maximize sales, and the first step is to let as many people as possible know about your business. You can use all promotional means to create awareness for your dispensary. Don’t forget to check which ones are compliant and allowed by the law.
Offer Competitive Pricing
To be able to compete effectively in the industry, you should ensure your pricing is competitive. By reducing your price a little, you can attract significantly more customers and increase your net profit.
To maximize profit, you must minimize expenses. Look at your operational costs and consider ways to reduce them without reducing quality.
Consider the 280E rule
Even though there are still many legal cases against the 280E rule, it is still in use. This rule stipulates that you cannot exempt your operational costs from your sales while calculating taxes. Hence, you must avoid unnecessary running costs as you will still pay taxes on them.
Control Your Inventory Effectively
Effective control of inventory is essential in all businesses. This is even more important for a dispensary. The government has firm regulations on the sales of cannabis, so it is essential for all dispensary owners to have good records of their inventory. While proper inventory control will help you stay compliant with the regulations, it will also help calculate profit and loss, set proper prices, adjust operational strategy, and adopt the best practice to maximize profit.
Offer Something Different
Since there are many strains of cannabis, you can offer something that is not common in your local market. Doing so, you can enjoy a monopoly in it and make more profits. It is also important to concentrate on strains that are not common in the market. You can diversify your line of business. There are many ways to do this in the cannabis industry. If you are into plain flowers, you can consider adding edibles to them. The more product lines you have, the more profit you will make.
Prospects of Marijuana and Cannabis Product Sales
As of now, 35 states in America have legalized marijuana and other cannabis products either for recreational and medical purposes. It is expected that more states will soon do the same. Perhaps all American states will allow cannabis to be sold legally sooner rather than later. Also, the federal law is expected to change and allow free movement of cannabis within the country.
As people anticipate more relaxed regulation of the industry, they expect more people to use cannabis. This will generate more income, as it is estimated that sales of cannabis will reach $38 billion by 2030.
The cannabis industry has just started, but it seems the sky’s the limit. Within a decade, it has recorded multiple folds of expansion. The next decade may witness even more.
As soon as the U.S. started legalizing cannabis, many investors began obtaining licenses to run cannabis dispensaries. However, the income generated by these dispensaries varies from state to state and according to the sizes of their businesses. While some dispensaries are making more than ten million dollars a year, the income of others is just around $100,000 a year. Pretty impressive.
Despite the huge profit recorded by the industry, there is still room for improvement. A dispensary owner can increase their profit by reducing operational costs, creating more awareness, offering competitive pricing, going into more product lines, and controlling their inventory more effectively.