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HOW TO OPEN A

CANNABIS
DISPENSARY
A COMPREHENSIVE GUIDE TO JOINING THE GREEN REVOLUTION

AN EBOOK FROM

1
CONTENTS
Intro.............................................................................................................................................1

First Steps..................................................................................................................................5

Writing Your Business Plan.....................................................................................................7

Estimating Costs......................................................................................................................10

Average Startup Costs at a Glance......................................................................................15

Securing Financing.................................................................................................................17

Building Your Dream Team....................................................................................................21

Real Estate & Community......................................................................................................27

Architecture, Design & The User Experience....................................................................30

Technology...............................................................................................................................35

Security Issues........................................................................................................................37

Sourcing Your Flower.............................................................................................................39

The Licensing & Application Process.................................................................................43

Licensing & Application Must-Haves..................................................................................45

Conclusion...............................................................................................................................46

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INTRO
WITH OVER HALF THE COUNTRY NOW PERMITTING THE USAGE OF MARIJUANA, A NEW
GREEN RUSH IS SWEEPING THE NATION.

59.3% of the population lives in an area where marijuana is legal in some degree; and over
20% of the population live in states where recreational use is permitted. New businesses
in the cannabis industry are springing up quite literally like weeds - grow operations,
processing facilities, and dispensaries, to name just a few.

Today we’re going to take an objective look at both the potential benefits as well as the
risks involved in opening a dispensary, and walk you through the entire process; we’ll
cover everything from obtaining your initial funds, to applying for your license, all the way
through opening your doors for business.

The fact of the matter is that entering the legal cannabis industry can be incredibly
profitable. Recent estimates peg the rate of return on investments in the cannabis
industry comparatively higher than they were at the peak of the dot-com boom.

COVA CANNABIS RETAIL SOFTWARE. PHOTO TAKEN AT THE VILLAGE DISPENSARY. ALL RIGHTS RESERVED.
4 1
Most new dispensaries are in the black within their first year of operation, and an and external – as well as robbery. You’ll also have to spring for a pretty heavy duty
incredible 90% of them are profitable or at least fully covering their operating costs. security and surveillance system to stay compliant with the law.

Unfortunately however, the grass isn’t entirely green when it comes to the landscape While the list of challenges in opening a cannabis dispensary is certainly formidable, so
for starting a new dispensary; there are a number of significant challenges and risks are the rewards for successfully doing so. In the next chapter we’ll take a look at some of
that dispensaries must successfully navigate and overcome. Broadly speaking, these the initial research and planning that needs to be performed prior to taking your first steps
challenges can be categorized into four groups; legal, financial, social, and security- towards opening the business.
related. www.covasoft.com

• Legal – Dispensaries face a much higher standard than the average business when
it comes to legal compliance. The cannabis industry is highly regulated in all states,
and you (and everyone associated with the dispensary, even investors!) are going
to have to satisfy some stringent requirements when it comes to residency and
criminal background, and will face an ongoing struggle to ensure you remain legally
compliant at all times.

• Financial – To take full advantage of the Green rush, you’re going to need to be able
to raise a lot of green currency. Even a modest dispensary can easily cost upwards
of $250k+ to open the doors. Additionally, dispensaries often have difficulties
obtaining financial services due to federal banking restrictions related to the
criminal classification of cannabis, which leads to an overly heavy balance of cash
transactions.

• Social – Just because cannabis is increasingly legal doesn’t mean that the social
stigma against it has disappeared. Make an honest appraisal as to whether this
might create any personal friction for you with friends or family (though these days,
you’re probably more likely to be congratulated or admired). You’ll also want to
pay attention to the attitudes and perception of your landlord, neighbors, and the
community at large.

• Security – Finally, as the owner of a dispensary you have some significant security
concerns to deal with. When thousands of dollars of your cash or product can
easily be stuffed into a pocket you’ve got to be on the lookout for theft, both internal

2 3
You’ll notice one recurring answer in this ebook is “it depends”; each and every individual state has
been left to design their own licensing, application, and compliance procedures, meaning the legal
landscape in which dispensaries operate can vary dramatically. We’ll try not to harp on the point, but
always remember that everything needs to be cross-referenced against the policies and procedures
that cover the state in which you intend to operate.

1
FIRST STEPS

Most states actively maintain a checklist of sorts on their official websites that detail how
the application process works, which you’ll definitely want to take a look at. Generally
speaking however, the four most important first steps in opening a dispensary, no matter
the location, can be boiled down to finding your location, making sure you’ll get your
license, raising your initial capital, and drafting a solid business plan. Let’s take a look at
these in greater detail:

1. Location – In most jurisdictions, in order to even fill out the paperwork related to
your license application you’ll need to have a prospective physical location for the
dispensary already locked down. This means you’ll need to research the various
municipalities you are considering operating in, paying particular attention to local
demographics and possibly additional hurdles when it comes to compliance at the
local level. Chapter 7 of this ebook deals is dedicated specifically to the challenges
associated with finding the ideal location for your dispensary, and addresses all the
major considerations involved in greater detail.
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2. Licensing – Ultimately, no license equals no dispensary, so this is an excellent place
to begin your research. Work with an attorney and perform an in-depth study of
all federal, state, and municipal laws, along with licensing requirements. Here is
an excellent breakdown of the legal status of cannabis programs by state, and this
site has links to the official cannabis website portals for each state. The two most
important things to look out for are “must haves” and “red flags”; ‘must haves’ being
requirements you must satisfy in order to obtain the license (such as residency, etc.),
and ‘red flags’ being items which can cause an instant rejection of your application
(such as possession of a criminal record).

3. Financing – Simply put, no bank is going to approve a business loan to a cannabis


dispensary. You can’t go to the SBA either, since cannabis is still illegal under

2
federal law. That means the two primary sources of funding and capital for most
small businesses just aren’t available for dispensaries. Consequently, you’re going to
have to put some additional work into coming up with a plan to raise the initial capital
you will require; this may require a significant personal investment, or bringing in
other investors. Be mindful that in most states, even simple financial investors in any WRITING YOUR BUSINESS PLAN
cannabis-related enterprise may also have additional legal compliance hurdles to
As mentioned in the last chapter, the business plan is the single most important document
deal with.
an owner needs to create during the process of opening their dispensary. To keep things
4. Business Plan – Your business plan is by far the most important document that you simple, we’ve identified seven critical areas of focus that your plan should address, in
will need to draft; you will use it to help secure financing, and to demonstrate to the order to gain licensing approval and attract potential investors:
authorities that your operations plan satisfies their legal requirements, among other
• Location – There may be legal mandates or zoning laws in place which restrict
things. Your plan will cover finding and developing the location you intend you use,
potential locations for dispensaries (your attorney and realtor will advise you on
how you source your flower, the operations of your dispensary, your financing, how
this). Select the municipalities you are most interested in, get a feel for costs, and
you intend to handle security, your planned contributions to the community such
pay careful attention to any needed capital improvements. Also begin thinking about
as a commitment to hire locally, wages to be paid, and all other essential strategic
store design, traffic flow, and aesthetics/décor.
elements.
• Financing – Outline how much capital you need to raise, and where it will come from.
You may want to consider hiring a professional consultant to help walk you through
You’ll need to address licensing/application costs, working capital requirements, the
developing your business plan. Next, we’re going to take a closer look at the individual
cost of your initial flower stock, compensation for your staff, technology costs, real
components of a good dispensary business plan.
estate, and a number of other factors. You’ll need to be very specific as to who the

6 7
investors are to ensure successful licensing. While this should get you off to a great start, it really only scratches the surface of what
your full plan should cover. The more detailed, thorough, and complete your plan is, the
• Use of Funds – Break down exactly how you intend to spend your initial capital;
higher the likelihood your licensing application will be approved. For an in-depth look at
potential investors are going to want to know exactly what type of equipment and
writing a business plan for cannabis retail check out this guide.
displays you plan on using in your dispensary, along with salary projections, real
www.covasoft.com
estate costs, and any other major category of capital expenditures.
MOST COMMON WORDS APPEARING IN NAMES OF LICENSED MJ BUSINESSES
• Team – Due to the enhanced legal scrutiny of the cannabis industry, dispensaries
Licensed Producers & Processors Licensed Retail Marijuana Stores
perhaps depend more on their staff for success than most other businesses. You’ll
need to get top notch professional services, including legal and financial advice,
MEDS INTERNATIONAL
PRODUCTION NATURAL BEST GROUP
HEALTH EMERALD NATURE
CANNABIS CREEK DISPENSARY HAPPY HEALTH

GREEN LEAF
PRODUCT ENTERPRISE
CANNA

GREEN
GROUP GROW ORGANIC
and you’ll also need to put together a team that handles your day-to-day operations, BUD
HEALING EXTRACT
WELLNESS POT BUD TOP

CANNABIS
COMPANY TREE

FARM
CENTER SKY HERB
including budtenders, security, and administrative support, including an experienced GROW KIND 420 CANNA

HIGH
WEED FARM LIFE
LAB
WELLNESS HERBAL
BLACK
CARE
dispensary manager. GROWER
ENTERPRISE
SKY BEST
MEDICAL
HIGH
HOUSE
MEDICAL

CARE GARDEN HAPPY


RETAIL
ORGANIC LEAF HOUSE MARIJUANA
KIND CENTER COMPANY
SHOP WEED
NATURE
CLINIC
CLUB

INDUSTRIES TREE SOULTION PURE MEDS LIFE 420 HEALING GARDEN SOULTION LOCAL NEW
NATURAL BLACK INDUSTRIES ALTERNATIVE
HERBAL MALE NEW
• Sales/Marketing – This section of the plan should outline what you intend to do to PRODUCT

All Licensed MJ Businesses


differentiate yourself from the competition. This could include a greater focus on
customer service, enhanced online ordering or home delivery capabilities, a superior GREEN
CANNABIS
design aesthetic that better appeals to your customer base than a room full of 420 FARM

posters, and a number of other factors. Delivering a superior customer experience is CENTER
WELLNESS
key to success. GARDEN
0 20 40 60 80 100 120 140 160 180 200 220
Number of Instances
• Operations – This part should focus on how your dispensary will operate on a
Source: Marijuana Business Daily
normal daily basis. Talk about your hours of operation, logistics, concerns related
to sourcing your flower, who will be on your staff and what roles they will fill, the
technology your dispensary will utilize, and other concerns of this nature.

• Security – The final important part of successful business plan for a cannabis
dispensary will deal with security. You will want to demonstrate your intended plan
for the property in detail, to satisfy licensing requirements. Typically this will consist
of a fairly sophisticated surveillance and recording system, but you may want to
bolster that with a live security presence as well. You’ll also need a plan in place to
vet prospective employees according to license requirements.

8 9
3
ESTIMATING COSTS

In terms of total cost, while no two dispensaries are created equal, you’re probably not
going to be able to realistically make a go of things in any location with less than $150k,
and in states with extensive capital requirements you could easily need upwards of $2m
or more.

Additionally, keep in mind that as a dispensary you are likely going to pay a significant
premium over regular market rate for all sorts of products and services. Sometimes this
is because some entities don’t want to be involved with those in the cannabis industry at
all, such as financial institutions. Other times this is because servicing your dispensary
will require specialized knowledge above and beyond what a normal professional might
know; for example, you’ll want legal and financial advisors that have cannabis-specific
expertise.

Now let’s take a look at the major categories of startup costs for the average dispensary,
along with some very basic estimates:

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• Application & Licensing Fees – For application fees, $5,000 is a good general • Professional Fees – When you’re starting a business that technically makes you
estimate, though these are as low as $150 in Louisiana and as high as $20,000 in New vulnerable to federal raids or arrest, the need for qualified, marijuana-specific legal
Jersey. Permitting and licensing fees are usually somewhat higher, and there can be representation and advice should be obvious. Same for your financial situation,
a variety of other supplemental fees as well. Here is a great state-by-state guide on including your Section 280E compliance. Add in some decent insurance policies, and
the subject, though some of the information is outdated; states can and do revise and you can easily spend $50k or more on various professional services, depending on
adjust these costs frequently. For California’s licensing information, click here. your size and scale.

• Real Estate – Likely to be your single largest expense. Easily $50k-$100k on an • Personnel Costs – Design a basic work schedule for your budtenders, administrative
annual basis for the rental of an average sized facility in a moderately competitive support, and security personnel, and count up the hours. You can expect to pay
market. You will likely also face an additional $25k-$100k in renovation costs to finish $12/hr. for budtenders, $15-$17 for floor managers or supervisors, and $20-$25 for
the space in the style you desire – more to make it really stand out from the crowd. experienced store managers.. Paying six total employees an average wage of $20
You may need functional additions as well such as expanding available parking or works out to almost exactly $250k annually.
ensuring handicap accessibility.
• Capital Investments – Unless you’re planning on getting involved in concentrate
• Financial Service Costs – As mentioned earlier, finding financial institutions willing processing or making edibles, or running your own grow operation, costs here are
to work with dispensaries can be difficult. Local credit unions may provide a better not extensive – barring your need for a sophisticated security and surveillance
alternative than banks, and there are private marijuana banks in several states now, system. Your on-the-floor equipment will include computers, cash registers, and
but these institutions may requirement payment of a monthly holding fee, which your POS system, and will probably cost $25k. You’ll want to work with a security
generally ranges from $1-2k/month. team to design a system that satisfies the legal requirements of your state, which

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can add another $50k or more. A V E R A G E S TA R T U P C O S T S AT A G L A N C E

• Advertising/Marketing – Be aware that the way in which dispensaries can legally R Licensing/Application - $5k
advertise and market themselves is highly regulated. Here is a great guide on the R Real Estate - $100k+ annual rent plus $50k renovation
subject. Despite your somewhat limited options compared to traditional businesses, R Professional Services - $50k+ annually
it is still easy to spend $25k or more annually on these activities. Traditional R Staffing - $250k annually
marketing activities like signage or radio/TV commercials are the most limited, so R Business Equipment - $25k
expect to have a relatively heavy digital presence; invest in a great website and R Security & Surveillance System - $50k
strong social media marketing program.
R Marketing/Advertising - $25k annually

• Product – In some states, dispensaries are expressly forbidden from growing their R Product - $1,500/lb.

own cannabis; in others they look at grow ops as a potential way to consolidate their R Capital Requirements - $150k
supply chain and cut costs. It is far more common for dispensaries to procure their

~$750k
flower from authorized suppliers, so that’s the assumption we’ll work with. In states
that have approved the usage of recreational cannabis raw marijuana (AKA: flower)
prices have been falling dramatically in recent years, but you can still expect to pay
upwards of $1,500/lb. for most strains of cannabis – sometimes significantly more in
the case of designer or low-yield strains.

• Capitalization Requirements – Here is another area where state by state variance is


huge. Arizona mandates applicants demonstrate $150k in available funds. Nevada
requires $250k. Pennsylvania requires a whopping $2m in total capital, $500k of
which must be liquid funds on deposit at a certified financial institution. Alaska has
no requirement of this sort at the current time.

Assuming you’re not paralyzed with sticker shock, in the next chapter we’re going to
examine some of the ways dispensary owners can successfully raise capital for their
venture.

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4
SECURING FINANCING

One of the most unique features of the cannabis industry is the relative lack of financial
services. Most of the traditional sources of capital are unavailable to cannabis
entrepreneurs. You simply will not be able to obtain traditional lines of credit, or working
capital loans. As a result, the state usually insists that you demonstrate you have
available working capital on hand to pay for daily and monthly costs of doing business as
a condition of the licensing process.

Now that we have some ballpark cost figures in hand, we’re going to discuss a few
potential ways you can employ to raise the capital to cover them:

• Self-Funding – Probably the most popular option for entrepreneurs in any industry.
Especially important in the cannabis industry, due to difficulty of securing financing
from traditional channels.

16 17
• Friends/Family – Another popular option for entrepreneurs in all industries, but again • Check out companies like:
even more popular in canna-business. When banks won’t easily lend, funds have to
– Tuatara Capital
be raised somewhere.
– Poseidon Asset Management
• Business Loans – At this point in time, most financial institutions will not work with – Privateer Holdings
or lend capital to startups in the cannabis industry. Look for this to change in coming – The Arcview Group
years, but for now do not plan on being able to raise funds through loans or banks. – Canopy Growth Corporation

• Partners – With no shortage of people looking to break into the cannabis industry, • Capital Brokers – Getting in touch with a capital broker specializing in the cannabis
there are likely several potentially compatible parties that may be interested in industry is another fantastic way to nd investors. It’s their job to locate and qualify
developing a partnership. Not only is this a great potential source of investment potential investors from all over the world who are looking to invest in marijuana.
capital, but their skillsets can often supplement yours as well.
Securing funding for a marijuana dispensary is harder than raising funds for nearly any
• Cannabis-specific Investment Groups – While the overwhelming amount of business other traditional type of business. Despite the difficulties involved, the potential profits
capital used in canna-business comes from self-funding, last year almost 18% of are quickly changing the minds of investors and financial institutions across the country
entrepreneurs were able to receive at least partial funding from investment groups and inspiring them to adjust their policies and get into the game. However, you need to
specifically dedicated to cannabis. realize that money comes at a cost, which very often ends up being an ownership stake.

Watch for even more changes over the next several years, including the potential
entrance of major financial institutions into the market, once some of the legal questions
hanging over the industry have been adequately resolved.

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5
BUILDING YOUR DREAM TEAM

When it comes to the personnel you’ll need to open and run a successful dispensary, they
can be broken down into two groups; professional services, and your day-to-day staff.
First let’s take a look at the most important professional services you’ll need to retain:

• Legal Advice – Probably the single most important relationship a cannabis


entrepreneur has is with their attorney. There are two specific areas of legal
expertise you’ll want covered; first, you need to have access to someone familiar
with the licensing, application and compliance processes of your state. Next, you’ll
want to make sure you’ve got world-class representation, just in case something
ever goes horribly wrong.

• CPA – Few would argue that the relationship with your accountant is only slightly
less important than that with your lawyer; remember, Al Capone eventually went
down for tax fraud, not trafficking! Dispensaries have a number of unique taxation
issues to deal with, such as Section 280E compliance at the federal level, and there

20 21
www.covasoft.com

down for tax fraud, not trafficking! Dispensaries have a number of unique taxation
ESTIMATED TOTAL EMPLOYMENT IN THE U.S. CANNABIS INDUSTRY: 2016
issues to deal with, such as Section 280E compliance at the federal level, and there
may be additional state issues as well. This person can also likely help put you in Employment by Segment Employment by Business Type

touch with potentially friendly financial institutions and insurance agents.


990-1,300
Testing Infused Product
• Compliance Officer/METRC Administrator – As mentioned earlier, every state has Labs Makers
Tot
5,500- es al
created its own patchwork system of regulation and compliance that you’ll have to 8,000 e rvic Pla
r yS

nt
deal with. A full-time compliance officer should definitely be one of the very first 15,000-

-To
la
cil
27,000

uch
An
hires contemplated by dispensary owners. They will help you manage and document Wholesale

ing
Total
42,000- Cultivators
66,000
all aspects of your business, as well as handle the administrative reporting mandated Ancillary
42,000- 58,000-
Services 66,000 88,000
by the state. Most dispensaries will train their office manager into this role over 37,000-
52,000
time, though during startup you may require additional assistance from someone Medical/Recreational
Dispensaries
with more experience. There are also companies like CannaRegs which provide
subscription-based research and monitoring of local regulations and changes, to
help keep your dispensary compliant with all laws at all times.

• Security Consultant – Most states require you to detail your adherence to their • Architect – A final hire you’ll want to consider is an architect. While not immediately
security and surveillance guidelines as part of the licensing and application process, apparent to most prospective dispensary owners, the overall customer experience
so you’ll want to begin working with someone to help you design your security you present is one of the most important factors in deciding which dispensaries
system as soon as possible. You’re going to need a 24/7/365 security presence will succeed in the long term, and which won’t. They can also help optimize traffic
including live personnel, transport planning, alarms, cameras, and recording flow, back office operational flow, and space usage in your dispensary, which can
equipment at the bare minimum. translate directly to faster speed and improved customer service. Some states will
not permit you to function as your own general contractor, and mandate that you
have someone specifically licensed to hire the builds who will create your space,
“Putting together the right personnel to run your dispensary which is another potential hurdle an architect can help you resolve.
can be a daunting challenge. Aim to strike a balance point in
your employees between having credibility within the industry
and being able to dress, speak, and act professionally.”

– Ty Hagen, director of operations at PANK LLC (wholesale cannabis), and owner of


Pacha LLC (cannabis consulting).

22 23
Now let’s take a look at the three basic categories of employees you’ll need to hire as COMMON LEGAL AGREEMENTS
day-to-day staff.
These are some of the most common legal agreements you will need in order to get your cannabis

• Budtenders – Your budtenders are the front line troops of your dispensary; their dispensary up and running:

performance can literally make or break you. Mistakes like selling to an underage
• Leasing Agreement – Pay special attention to usage clauses, as well as anything to do with
customer can quickly result in the loss of your license, so make sure to train them
physical changes you are making to the property.
extensively. They should also be trained to function as ambassadors for your brand;
empower them with information to help customers select the best strains of flower • Employment – The biggest difference in the standard employment agreements a cannabis

for their needs, and educate them as much as possible. Think of them like waiters dispensary uses are clauses to do with background checks and compliance issues.

in a restaurant; no matter how good your product is, their performance is going to
• Non-Disclosure/Confidentiality – Anyone involved with the intellectual property your
define your customer experience to most visitors. dispensary is creating (basically your professional service providers) should definitely sign one
of these.
• Security Officers – While not legally mandated in every state, it is still a very good
idea to consider hiring well-trained security personnel to protect your dispensary • Non-Compete – Another agreement to consider asking your professional service providers to
from theft and other issues. In 2009, over 1 in 6 dispensaries in Colorado were sign.
robbed, and there have even been a number of high-profile shootings and murders in
• Product Sourcing – You’ll definitely want to have custom product sourcing agreements drafted,
some unfortunate cases. Dispensaries are attractive targets for both employee theft
which cover exactly how your dispensary will acquire and transport your flower.
as well as outside criminal activity, and need to protect themselves against both.
• State/Municipal-Specific – This final category is a catch-all meant to describe specific
• Administrative – Like most businesses, there is going to be a certain amount of
agreements that may be mandated by state or local law in your jurisdiction.
paperwork and administrative support required. Accounts payable and receivable,
bookkeeping, and in-house IT are all things that dispensaries will need to deal
with on a regular basis. Many dispensaries also have a dedicated receptionist
responsible for intake at their front door.

• Store Management – Perhaps most importantly, you’ll need to retain an experienced


dispensary manager (with verifiable references!). This person can assist during the
initial set-up of the dispensary, advise on best practices, help evaluate suppliers,
recommend potential employees, and provide general assistance in running your
storefront – they can also act as a secondary point of contact for the Marijuana
Enforcement Division or like agencies. An Inventory Manager is also usually a smart
idea; in smaller operations this function is also usually filled by the Store Manager,
but larger dispensaries often employ a separate person specifically for this purpose. 
©COVA CANNABIS RETAIL SOFTWARE. PHOTO TAKEN AT EVERGREEN MARKET. ALL RIGHTS RESERVED.
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6
REAL ESTATE & COMMUNITY

Narrowing down your search for potential locations for your dispensary is actually easier
than you might think. Usually, the state in which you intend to operate is dictated by
residency requirements, so there isn’t much real choice there.

Choosing the specific municipality within your state, and ultimately the specific site can
be a bit more difficult. Here are five specific factors to keep in mind when evaluating the
suitability of potential locations:

1. Additional Compliance Burden – The first thing to take a look at is whether an


individual town or city has local regulations which will result in an increased
regulatory or compliance burden for you. Some communities want to encourage the
development of the cannabis industry and some do not, and they often accomplish
this by adjusting their laws.

COVA CANNABIS RETAIL SOFTWARE. PHOTO TAKEN AT THE VILLAGE DISPENSARY. ALL RIGHTS RESERVED.
26 27
2. Zoning Considerations – Another common situation is the restriction of sites for instead, work with the community to ensure their needs and concerns are met as
dispensaries based on zoning law. For example, in Boulder, CO, dispensaries well as yours, particularly when it comes to safety, security, and compliance with all
cannot be located within 1,000 feet of schools, drug treatment facilities, churches, aspects of the law. A letter of recommendation from your city can carry a great deal
playgrounds, or parks. Depending on where you are located, you may be forced to of weight in the application process as well. Some cities go so far as to mandate the
choose from an extremely limited variety of real estate. Your realtor and attorney development of a community involvement or education plan, which details how you
can help guide you through this portion of the process. intend to actively better the community, ensure your product does not end up in the
hands of minors, and other similar considerations.
3. Cost Assessment – The next factor you’ll want to evaluate is cost. If possible, work
with a realtor that has cannabis-specific contacts (you should be able to find some 5. Customer Demographics - One final piece of research you can conduct on
in your area with a simple web search or two), as this can reduce time wasted on prospective locations is an in-depth look at the local demography. Find out the type
property owners uninterested in working with the cannabis industry. Try to locate of people that live in the area, and how you can best market yourself to them. Find
sites that are at least partially equipped with the physical features your dispensary out what type of space and experience they want in their dispensary, and work with
needs to minimize the amount of development you’ll need to perform. your architect/designer to provide it. Investigate foot traffic versus road traffic and
ensure your facility is equipped to accommodate it all. Both foot traffic as well as
4. Community Attitude - Spend some time pounding the pavement in areas you are
local vehicle traffic, and the way you present your storefront to both, will play a huge
prospecting, and speak with your potential neighbors. Try to get a feel for their
role in the amount of new walk-ins you get.
attitude towards a new cannabis dispensary opening in their area. The last thing you
want to do is move into a location and find yourself facing hostility from residents;
www.covasoft.com

CALIFORNIA MEDICAL MARIJUANA REVENUE & DISPENSARY COUNT BY COUNTRY


Q2 2015-Q1 2016
Sales by County Dispensaries by County

eda
am
Al l Other All Other
Al

Co Co
u un
$129M Alameda
nti

tie
es

les 80
les
ge
$394M ge
1,851
An

An
Los

Los

$191M
766
68
$130M San Francisco
Sa

Fra
ncisco
n

Source: Marijuana Business Daily


28 29
7
ARCHITECTURE, DESIGN & THE USER EXPERIENCE

Bringing in an architect and interior designer to consult with you on the final design,
©COVA CANNABIS RETAIL SOFTWARE. PHOTO TAKEN AT DOCKSIDE CANNABIS. ALL RIGHTS RESERVED.
aesthetic, and layout of your dispensary is a very smart decision. Cannabis dispensaries
have a number of unique features that differ from other retail operations; configuring your
space to deal with these ahead of time will increase your internal efficiency and save • Medical Versus Recreational – Some states mandate separation of medical and
funds in the long run. Here are the most important factors you should consider related to recreational cannabis areas. Even if yours does not, you’ll likely want to create
your overall design: a different vibe depending on which of these two major markets you anticipate
drawing most of your customer base from. Alternatively, you may want to dedicate
• Public Versus Private Space – The segmentation of the internal area of your
specific portions of your space to deal with medical and recreational purchasing,
dispensary into ‘public’ and ‘private’ areas in mandated in most areas. Public areas
respectively.
are where your customers will browse, relax, and interact with budtenders. Private
areas include shipping/receiving, product processing, and inventory/storage, and • Traffic Flow Patterns – Putting some thought and consideration into how visitors will
often have a heightened need for security; they may require a badge to access. flow through your dispensary will go a long way towards providing them superior
There may be additional legal requirements to consider, such as that your storage service. Identify potential choke points, such as at cash registers or in the order
vault can’t be located on an exterior wall, and you usually have to post a variety of fulfillment area, and add plenty of additional seating and countertop space to
specific signage around your store as well. alleviate congestion.

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• Décor/Aesthetic – Gone are the days when painting your dispensary Rasta colors
and plastering the walls with Grateful Dead posters was considered sound design
strategy. These days, most people are looking for a space that looks professional
and safe. Take inspiration from other local businesses that are already successful
with the target demographics you want to serve. By creating an ambiance that puts
people at ease, you can help move people away from the negative stigma sometimes
associated with dispensaries. Don’t assume décor begins and ends with visuals
either – music is a core component of most places known for their great aesthetics.
Provide them plenty of space to browse and sit as well.

• Brand Experience – A final consideration for your dispensary is what type of


experience you want to deliver. Do you envision your dispensary as providing a
highly clinical ambiance for patients, and mainly focusing on the medical marijuana
crowd? Or do you see your dispensary as a place for recreational users to spend
time and hang out instead? You can also consider what, if any, additional services
you want to offer – in some places, like the Colorado medical market, the state
mandates that you provide at least one service other than selling cannabis. Holistic
healing, patient consultation, on-premises physicians are all examples of add-ons
that have been successful for dispensaries. Some of them have even successfully
offered massage, or hair & nail styling!

©COVA CANNABIS RETAIL SOFTWARE. PHOTO TAKEN AT GREEN LADY MARIJUANA.


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8
TECHNOLOGY

The average cannabis dispensary is a far more complex retail environment than you
might initially imagine. Not only do you face the same performance burdens as other
businesses, but you also have to deal with significant legal and compliance requirements.
Choosing the right technology infrastructure for your dispensary can go a long way
towards mitigating many of these challenges; let’s take a look at some of the key
considerations you’ll want to keep in mind:

• Compliance – The number one concern for dispensaries is ensuring they always stay
100% compliant with state and local regulations. A dispensary POS combined with
a seed-to-sales system can help you accomplish this by preventing your budtenders
from making sales outside store hours, helping them monitor daily sales limits and
inventory levels, tracking licensing information for suppliers and employees, making
sure labeling is accurate, and storing your reporting data according to requirements.
It backs this up with a robust reporting suite that includes the ability to run a full audit
history on your dispensary at any time.
COVA CANNABIS RETAIL SOFTWARE. PHOTO TAKEN AT DOCKSIDE CANNABIS. ALL RIGHTS RESERVED.
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• Reliability – The overall reliability of your technical infrastructure is another
primary concern for dispensary owners. A system crash can quickly land you out
of compliance when it comes to regulations, disrupt your supply chain, and end up
costing you thousands of dollars in lost sales. Invest in a solution that can document
its uptime, has numerous redundancies, a sophisticated cloud-based data repository,
and an offline processing mode, and you will be fully prepared to continue operations
even on your busiest days or while dealing with technical issues.

• Easy to Use – Software can often create more problems than it solves. Dealing with
heavier burden when it comes to training time for your staff (particularly important
given the relatively high turnover in the industry), and the increased human error

9
that results from using an overly complex technology platform will definitely impact

your profit margins and slow down your sales times. A POS designed specifically
for dispensaries can help alleviate these issues, allowing you to sell more product in
less time.
SECURITY ISSUES
• Improved Retail Experience – With the average lifetime value of a dispensary
customer being so high, it only makes sense to do as much as you can to improve the The primary purpose of a cannabis security plan is to provide a safe and secure
customer experience your dispensary offers. An integrated POS can turn all of your environment for the dispensary’s employees, patients, and visitors, while abiding by all
budtenders into product experts to help guide customers through their purchasing legal requirements. Let’s take a look at the three most important components of any
journey – customers return to stores they trust. You can also build brand recognition dispensary security plan:
and loyalty by creating and using an e-commerce platform, along with digital signage
and menus that help improve and streamline the retail experience for users. 1. Facility Security – The physical security of a dispensary is typically comprised of
a camera system, an alarm system, and an access control system, bolstered with
• Computers & Other Digital Equipment – Finally, you’re going to need to evaluate your active security personnel. Both internal and external theft are potentially issues;
need for computer equipment throughout your dispensary. At the bare minimum, employees can pocket cash or merchandise, and the possibility of armed robbery
you’ll need one set up at reception for processing intake, and one in the back for or burglary is very real, especially for dispensaries which have difficulties finding
tracking inventory. You may choose to supplement this with tablet devices for financial services and consequently maintain substantial cash reserves. You’ll also
customer usage, and you’ll also need a variety of accessories, such as the barcode need a system to archive and store your security footage for the appropriate period
scanners you will use for inventory management, and the swipe machines used to mandated by law. You may want to potentially consider hiring an external security
verify customer IDs. service to monitor your alarms and handle the camera footage storage requirements.

Get a free POS Buying Guide for the industry to help you make informed decisions.

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2. Product Security – Securing both your cannabis and your cash receipts is another
primary concern for dispensaries. You’re going to need a ton of locked safes and
secure product storage. You’ll want to have a main vault for flower storage, and
controlled security cases for areas where it is displayed to help prevent shoplifting
by overly curious customers. Consider investing in shatter-resistant glass as well.
To handle your cash you’ll want at least one more heavy duty safe. At the end of
the day, your entire stock of cannabis, edibles, concentrates, and everything else
you offer must come off the floor and into a locked space (double check that you’ve
designed your safe room with adequate space to accommodate this). Consider
segregating employee access based on job duties; budtenders don’t need to do
anything with cash other than receive it so they don’t need safe access. On the
other hand your bookkeeper does need safe access, but does not need access to the

3.
inventory or product storage areas of your facility.

Policies & Procedures – Developing a comprehensive set of security related policies


and procedures to follow is of critical importance for dispensaries. All employees
10
should receive extensive training in this regard. The most important thing to develop SOURCING YOUR FLOWER
is an extensive auditing procedure that can track and account for every gram of
Sourcing options for dispensaries largely boil down to one of two options; either
cannabis that passes through your facility, and tie it either directly to inventory or to
grow your own flower, or purchase it from an authorized supplier. For the most part,
a cash receipt. Usually, dispensaries will audit their sales floor inventory on a daily
recreational dispensaries tend not to grow their own flower, while it is more common
basis, supplemented with a whole-store check once per month or so. Work with
in the medical arena (and actually mandated in some states, like Colorado). However,
your attorney and security consultant to flesh out these documents and ensure you
even stores that do host their own grow operations will not be able to grow all the strains
are in compliance with all laws for your state.
they would like to sell, or even all of the most popular strains – meaning virtually all
  dispensaries turn to licensed growers at some point. We’re going to walk through some
of the considerations you should keep in mind when selecting the right choice for your
“I’m not terribly concerned with the intersection with federal operation:
law as far as it would result in raids or any interference by the
• Legal Considerations – In some states, dispensaries are expressly prohibited from
federal government; that’s just not going to happen.” being involved in cultivation. In others, they are highly encouraged to do so. In
California, the whole system is still in flux until the MCRSA act comes into force next
– Aaron Herzberg, Partner and General Counsel at CalCann Holdings
year in 2018, which means you need to operate in the so-called ‘grey market’ until

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www.covasoft.com

AVERAGE ASKING PRICE PER POUND OF FLOWER IN COLORADO THROUGHOUT


the year; in some states like Colorado, they actually set average marker prices on a
2016 bi-annual basis in order to properly set the rate of excise tax on wholesale orders.
Average Asking Price - Medical Average Asking Price - Recreational

• Buying Wholesale – In some ways, vertical integration makes sense; however,


$2,106
it also precludes specialization to some extent – the best cannabis salespeople
$1,850
probably aren’t the best cannabis growers. Growing also takes things to a whole
Average Asking Price per Pound of Flower

$1,900
$1,450
new level financially – it is usually a million dollar plus endeavor, which is out of

$1,402
reach for many operations, making wholesale purchasing even more attractive.
$1,306
When the time comes to evaluate potential providers, look for wholesalers with
an established reputation in the industry, and those who grow the specific strains
you’re most interested in marketing. You’ll also want to verify that they can produce
the quantities you’ll need, and that they are in good standing as far as their own
licensing status with the state.
January February March April May June July August September October November December

Source: Marijuana Business Daily

then, acquiring your flower from individual growers and collectives. In Colorado, all
medical dispensary owners must grow at least 70% of their on-hand inventory.

• In-house Expertise – If you’re interested and able to cultivate your own flower,
you’ll also want to honestly consider whether you have the expertise to do so
cost-effectively. Commercial-scale cultivation of cannabis requires a very specific
skill set, which may require hiring new staff you did not originally anticipate. Errors
or mistakes during the cultivation process can result in the loss of entire crops of
cannabis, causing substantial expense, not to mention severe disruptions to your
supply chain.

• Extracts, Concentrates, & Edibles – While cannabis flower prices continue to fall
(though there is some indication this trend is leveling off already) as mentioned
earlier, profit margins on extracts, concentrates, & edibles have actually slightly
risen in recent years, making them attractive offerings for dispensaries.

• Manufacturing these products yourself is probably out of reach for most


dispensaries, due to prohibitive cost. Flower prices also tend to fluctuate throughout
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11
THE LICENSING & APPLICATION PROCESS

In our final chapter, we’re going to examine the actual process involved with applying
for your dispensary license, and break it down into a few easy to understand steps.
We’ll also highlight a few key components you’ll need to have complete and in-hand to
successfully navigate the process, regardless of which state you intend to operate in:

• Online Research – The first part of the licensing process is always researching your
states’ procedures online. For California, you can find more information here. Other
states, like Colorado, have all the necessary information already collected for you
and in one place.

• Red Flags – Next, you’ll want to check to see if there are any potential red flags
within your business plan that may cause your application to be denied outright. Not
meeting age or residency requirements can trigger such a denial, as can criminal
convictions.

COVA CANNABIS RETAIL SOFTWARE. PHOTO TAKEN AT EVERGREEN MARKET. ALL RIGHTS RESERVED.
42 43
• Administrative Paperwork – The next step in the process is actually filling out all of www.covasoft.com
the forms and applications the state requires. This is usually fairly straightforward
CITY OF PORTLAND CANNABIS PROGRAM APPLICATION STATISTICS
part; ensure you are open and honest to the best of your ability, and double check
BY LICENSE TYPE
that you have every one of the required elements of the application. This will Total Applications Accepted Total Applications Approved
include obtaining a FEIN from the IRS, along with your tax number and any required
documentation relevant to your choice of corporate structure.

• Investigation – Next, you’ll wait while the state licensing authority investigates your
application and performs its due diligence. If any problems are turned up during the
investigative portion of the process, the applicant will typically be notified and given
an opportunity to respond.

• Consultation – Assuming all the information provided on the initial application 64 85 68 79 157 186
checks out, most states will then proceed to schedule an in-person consultation 10/24/2016 2/21/2017 10/24/2016 2/21/2017 10/24/2016 2/21/2017

between the prospective owners and the licensing board. Everyone will have to 0 4 2 5 6 76
attend, and assuming your application is approved, you will typically be expected to
render payment at this time. There may be additional elements of legal compliance
Source: Marijuana Business Daily
after initial approval as well, such as fingerprinting.

• Local Compliance – After the state approves your license, you may also be required
to seek additional approval at the local level. Work with the specific municipality you L I C E N S I N G & A P P L I C AT I O N M U S T- H A V E S
are considering operating in to ensure that you are fully compliant on the local level,
R Business Plan – You aren’t getting anywhere without one.
as well as at state. Local applications can often end up taking longer to process than
state ones, so be sure to account for any extra time needed. R Financing/Proof of Capitalization – Be able to clearly demonstrate possession of the appropriate
amount of capital to the licensing authority.
• Tax/Financial Issues – Finally, once all licensing and compliance details are handled
at the state and local level, there may be additional financial or taxation related R Full Team List – For background checks and fingerprinting purposes.

issues to handle. Typically you will need your formal license approval before you are R Location – Make sure your selected location is fully compliant with all state laws.
allowed to begin applying for these types of documents.
R Security & Surveillance – Having a finalized security plan for your facility is a critical part of the
licensing process.

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12

CONCLUSION

Assuming all goes well at your licensing hearing and your petition is granted, you’re now We’ve done our best to provide you with a comprehensive overview of what is involved
ready to officially launch your new dispensary, and join the Green Rush in earnest. in opening a legal cannabis dispensary, along with all the information and resources you
need to make your own informed decisions about how to proceed.
These are incredibly exciting times for those interested in the future of cannabis; it is
hardly an exaggeration to say that the changing of our societies’ viewpoints on the matter However, that’s not enough, and we know it. We know you’re going to have more
is one of the biggest social shifts of the past few generations (try comparing the original questions as you begin navigating your way through the process, and that you’re going to
Reefer Madness of 1936 to the musical version of 2005 for a laugh!). need additional help.

We never would have gotten to this point had it not been for the tireless activism, work, When you find yourself in need of additional information or assistance, we hope that
and enthusiasm of cannabis proponents over the years. The dedication and passion one of the first places you turn to is our regularly updated blog – it’s full of articles,
for the industry that they show is inspiring, and probably one of the major reasons you whitepapers, and other strategic insights that will truly help you take the performance of
decided to start investigating the industry yourself (the potential financial rewards your dispensary to the next level.
don’t hurt either). That’s why we wanted to create and share this eBook with the world
ourselves; at Cova, we share your passion for cannabis, and saw that there was a real
need for more information on the subject.

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ABOUT COVA
We’re a mix of dreamers, strategists and technologists determined to leave the world
better than we found it.

Cova is a retail software solutions company. We design and build products specifically
for the cannabis industry. Our point of sale (POS) and suite of digital solutions make
complex operations simple, so retailers can stay compliant and deliver an unforgettable
experience every time.

What sets Cova apart? Our retail platform powers 19,000 locations of all sizes and
verticals with virtually no downtime, even on Black Friday and 4/20, making us the most
robust and reliable cannabis POS system available. We work closely with our customers
to solve problems, streamline operations and create great experiences for owners,
budtenders and customers.

Growing your empire takes time, experience and the right technology partner.

We know how. Join us.

CANNABIS RETAIL SOFTWARE

FAAI STEUER
EM: FAAI@COVASOFTWARE.COM
PH: +1 (888) 472 6989
WWW.COVASOFTWARE.COM
1777 SOUTH. HARRISON STREET, DENVER, CO 80210

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