Wednesday April 6, 2022
By Trevor Ross
You might have heard this shouted before, “We should own a bar!” It’s a common refrain from folks who love their local watering hole. Similarly, many cannabis users have entertained the idea of opening their own dispensary. However, most people who own bars will tell you it’s not as profitable as one might hope after operating costs, insurance, licenses and more are accounted for. However, dispensaries appear to be taking in far more money.
In 2016, Marijuana Business Daily estimated the cannabis market would be worth as much as $11 billion by 2020. It turned out to be worth $12.8 billion. The CBD market alone is expected to reach $22 billion this year. Now Marijuana Business Daily estimates that the US cannabis industry will cash in over $49.5 billion by 2025. Given these staggering numbers and their meteoric rise, it’s no wonder people are asking how to get into the cannabis industry and what it takes to open up shop. The catch is that cannabis still remains federally prohibited, raising high hurdles for aspiring entrepreneurs.
In this article, we review how much money dispensaries make, the operating costs associated with it, and how much money dispensary owners get to keep.
How Much Money Do Dispensaries Make?
This is a very broad question, like asking how much a café makes. Cafes, of course, come in different sizes, specializing in different services (java, food, music, etc.) for different markets (professionals, students, tourists, etc.) So it’s impossible to say “Cafes make X dollars per year.” Similarly, it’s impossible to say exactly what a dispensary should be expected to make in a given year. All of that said, there are a few numbers we can use like stars to steer by.
The comparison to a café is an apt one, but the good news is that cafes generally make money, and so do dispensaries. In 2018, ArcView Market Research determined that dispensaries make an average profit margin of 12%, which is right in line with Starbucks.
These numbers don’t change much if the dispensary is medical or recreational, though combination retail stores generally score higher, closer to 15%. There’s no mystery there: combination dispensaries can serve two markets under one roof, with one staff, thus dividing operating costs over a larger market share.
If percentages aren’t your thing, Statista offered up some harder numbers in 2017, suggesting dispensaries averaged $3 million in annual revenue while spending about $1.2 million in operating costs. Again, the specter of “operating costs” casts a long shadow.
Returning to our café comparison: imagine that Starbucks had to operate under wholly different rules in each state, and some Starbucks served medical caffeine only. This is where dispensaries stop taking in money, and start hemorrhaging it.
How Much Does it Cost to Run a Dispensary?
Before a dispensary can even begin advertising, expensive (and limited) licenses must be obtained which alone can cost six figures. Then real estate will need to be acquired, buildings inspected, equipment purchased, wholesalers negotiated, usually a lawyer retained, staff hired and trained, and so on. Before the grand opening, dispensaries can spend nearly three quarters of a million dollars before a single dollar is earned in return. Oh, and you can’t get a bank loan.
Because cannabis remains federally prohibited, banks – who are insured by the US government – will not lend to any cannabis business as it may leave them vulnerable to money laundering claims. Cannabis money is, federally speaking, dirty money.
There are private lenders, including some credit unions, who will work with dispensaries (usually with exorbitant holding fees), but startup capital must come out of pocket or multiple pockets like those of ownership groups.
Dispensaries are also ineligible for certain tax deductions that would be a matter of course for other businesses. The infamous Section 280E of the US tax code prohibits any deduction or credit for any “trade or business [that] consists of trafficking in controlled substances.”
Because cannabis is still a Schedule I controlled substance, dispensaries, cultivators, processors, or any other “plant-touching” business must swallow every penny they spend on themselves, from insurance to equipment to the ink in the register.
How Much Does a Dispensary Owner Make?
Estimating how much a dispensary owner makes is even more fraught than estimating the income of a theoretical dispensary. It’s safe to say most of them are making a profit, because as we saw earlier, most dispensaries are known to make a profit.
Business owners tend to be tight-lipped about the details of their income because at the ownership level the personal income and company income begin to blend together.
The public number that most sources reference is drawn from a 2018 article by Gary Cohen, the CEO of Cova Software, a point-of-sales and cannabis compliance company. In his report, Cohen suggests the owner of a dispensary making $5 million annually could pay themselves a salary of $500,000, or 10%, though it’s unclear if Cohen is estimating total revenue or profits.
The earlier numbers we saw from Statista suggested the average dispensary brings in $3M minus $1.2M in operating costs, resulting in $1.8M in profits. So by those numbers, combined with Cohen’s 10%, a dispensary owner could be expected to draw anywhere from $180,000 to $300,000 annually.
With that kind of paycheck, you could almost afford to open a dispensary.
Despite the soaring operating costs, dispensaries do make money. Marijuana Business Daily’s 2016 factbook reported 18% of dispensaries described themselves as “very profitable,” while the next 41% claimed “modest profits.” Nearly a third hovered even while only 12% reported losses.
In short, dispensaries make mountains of money, but it costs smaller mountains to remain operational and compliant. This doesn’t mean it’s a bad idea to own a dispensary. On the contrary, with the US government ordaining them “essential services” during the pandemic, they’ve enjoyed immunity from much of the economic crises that have plagued other businesses and will likely prove to be recession-proof over time. The highest hurdle limiting access for fledgling entrepreneurs is the near seven-figure startup cost.
On February 4, the US House of Representatives approved an amendment to the Secure and Fair Enforcement (SAFE) Banking Act that included cannabis banking reforms, but Senate Minority Leader Mitch McConnel quickly denounced the amendment as a “poison pill”.
Do you work in a dispensary? How much money comes through your store and how much does anyone get to keep? Tell us what you know in the comments below!
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