Best States to Start a Cannabis Business

When you launch a cannabis business, you’ll need to research critical information around costs, including the cheapest state to open a dispensary and other factors that affect your business. The sole fact that you are thinking about starting your own cannabis business shows that you are passionate about the industry. And when you also know that cannabis sales in the U.S. reached $26.5 billion in 2021, that can only add to the temptation. Now imagine turning your passion into a successful business that will make you proud to be an entrepreneur in this budding industry.

But, starting a cannabis business is not an easy task, so you might need some help when setting things up, especially if this is your first endeavor of that kind.

Let’s say you want to open a cannabis dispensary. Then, you’d probably like to know the cheapest state to open a dispensary in, especially if you are flexible about your company location. And while the cost of starting a dispensary might not be the only concern you have, it certainly is one of the major ones.

Many factors influence the overall cost of opening a cannabis dispensary. You’d need to factor in licensing fees, real estate costs, wages, the funds you need to stock your store with popular products, advertising costs, and more.

You should also consider the market conditions in all the states where cannabis is legal, product sales prices, taxes, and other factors that might influence your decision. The challenge is bigger when we know that the legal environment around the cannabis industry is still complex, and different laws are applicable in each state.

Let’s start this guide by looking into some of the major costs associated with opening a dispensary before discussing the best options when picking the right location for your business.

What Are the Costs When Opening a Cannabis Dispensary?

Before applying for a loan to open your dispensary, it might be a good idea to calculate the approximate sum you will need for your startup costs. Of course, you won’t be able to predict every expense you might have, but it is essential that you count in the major costs so nothing can surprise you.

Sources indicate that cannabis businesses still need to set aside a larger sum for certain services than other companies, but that is usually because this industry still lacks qualified professionals to cater to every company’s needs. For example, you should consider contracting the services of a tax consultant who could help you navigate the complex tax environment for your dispensary, which can be costly.

Let’s look at some of the major costs you can expect to encounter when opening a dispensary:

Licensing fees: The first thing you should know is that you have to pay both application and licensing fees if your application gets approved. This cost varies from state to state, and the application fees are partially refundable in some states if your application is unsuccessful. You can expect your application fee to be as low as $250 in Washington or a whopping $60,063 in Florida. Licencing fees are usually higher, and you should check your state requirements when applying for one.
Real estate costs of opening a dispensary: Some states require that you have secured the property for your dispensary even before applying for a license. The sum you will need to put aside for your rent again depends on the state and city where you’d like to open your store. If you need to adapt the space to your needs, you can expect to invest additional funds before you are ready to take customers.
Personnel costs: Good staff is the lifeline of your business. When customers come to your store, they want to talk to someone knowledgeable who can answer all the questions they might have. That’s why having an experienced budtender is absolutely essential for your dispensary. It is also important that you have a store manager to make sure everything is running smoothly. Additionally, consider contracting the services of a lawyer who will ensure that you comply with state and local laws.
Insurance costs: Knowing how risky it is to run a cannabis business while the legal environment is still so complex, you should strongly consider buying adequate cannabis dispensary insurance for your company. It will provide a financial safety net in case of any unplanned event.
Initial investments and product costs: When opening up a shop, you should factor in some initial investments to kick off the operations. A new dispensary will need a computer, a cash register, a surveillance system, a POS system, and other necessary equipment. Also, you must stock your shelves before opening your doors to customers, and that will be a huge item to cross off your list of costs. Whether you want to sell only the flower or also some edibles, oils, drinks, or other popular goods, you will need the initial capital to obtain all those items from a trusted supplier.
Required available funds: Some states require that you provide evidence of having a certain amount of available funds before issuing a business license for your new cannabis business. The sum varies from state to state, and you should check your state and local regulations to know what to expect in your area.

What Is the Cheapest State to Open a Dispensary?

If price is the primary concern leading you to look for the cheapest states to open a dispensary, then you’d probably like to know more about the cheapest state where you could start your business. We looked high and low across all the legal states and concluded that the answer might not be all that simple and that there might be more than one option for you.

Looking at the tax landscape, licensing fees, and other startup costs, we concluded that, cost-wise, the best options for your first cannabis dispensary could be Oregon and Colorado. If you haven’t considered these two states yet, now might be a good time to look into what they have to offer.

Oregon

Here’s something you might not have known before: the first state to decriminalize possession of small amounts of marijuana was Oregon in 1973. Oregon legalized marijuana for medicinal use in 1998 and recreational use in 2014, with the law taking effect on July 1, 2015. The official legal sales then started on January 1st, 2017, when the stores that had previously received their licenses could start their operations.

Fast forwarding to the present time, Oregon is still a good option and one of the cheapest states to open a dispensary. Application and licensing fees for a dispensary are $5000 in total ($250 for an application and $4,750 for a license), but they are significantly lower if you are looking to open a micro business.

The average cost of an ounce of marijuana for recreational use in Oregon is $210.75, which is well below the national average of $326.06. Retail sales tax is at 17% statewide, and there is an option to add 3% of sales tax locally. These rates are also below the national average, which is what allows retailers to maintain lower prices for their customers.

When it comes to the position of your store, you should note that regulations in Oregon demand that dispensaries should be at least 1,000 feet away from the nearest school or daycare. 

You might encounter similar challenges as cannabis entrepreneurs in other states, with some real estate owners or managers not being comfortable renting out space to cannabis businesses. When you find adequate space for your dispensary, you can expect to pay the average price for renting a commercial property in the city you choose as your business location.

Additionally, you should count in the costs of stocking your store, installing a surveillance and security system, wages, and other operational expenses.

Colorado

Even though Colorado legalized marijuana for medicinal purposes in 2000, it wasn’t before November 2012 that cannabis was legal for recreational use for adults over 21. Legal sales started in January 2014 when the first retail stores opened their doors to customers.

Licensing fees are slightly higher in Colorado than in Oregon, so you would need to pay a $5,000 application fee and an additional $2,000 annual licensing fee if your application is successful. You should note that the licensing price is the same for opening either a medicinal or recreational cannabis dispensary.

When compared to Oregon, Colorado also has higher taxes. There is a 15% excise tax on “unprocessed retail marijuana” and a 15% retail sales tax. Medicinal marijuana dispensaries have a 2.9% state sales tax on most of their goods and services.

Being among the first states to fully legalize cannabis, Colorado is home to many dispensary owners, and the average price of $241.74 per ounce also makes it a popular destination for recreational users. When you consider all the competition and potential over-saturation, the Colorado market might be challenging to crack, so you would need to do your research and make a detailed business plan.

Reports indicate that the rent for a cannabis dispensary in Colorado was historically relatively high but is now similar to that for any other store. When you add the costs of security, surveillance system, and the potential remodeling, these property-related costs should be similar to those in Oregon.

Buying products to stock your dispensary is another major cost you should prepare for, and, of course, employee wages that should be competitive in the market.

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Other States to Consider When Opening a Dispensary

We listed Oregon and Colorado as two of the cheapest states to open a dispensary, but there are other good options, especially if initial expenses are not your biggest concern. Some states offer better market conditions, others offer lower tax rates, and some offer more flexible licensing options. 

The best course of action for someone looking to start a cannabis business is to research their options thoroughly. When you complete your research, put all your options in one place, weigh them, and decide on the best course of action. If you need help choosing the best solution, consider contracting an experienced expert in cannabis businesses who can help you from an unbiased and objective point of view.

Here are a few more of the cheapest states to open a dispensary to consider when deciding where to launch:

Michigan

Michigan legalized marijuana for recreational use in November 2018, and the dispensaries started with retail sales in December 2019. What makes Michigan a good destination for your cannabis dispensary is its potential for profit due to low tax rates. You can expect to pay 10% retail excise tax and 6% state sales tax in Michigan, which is lower than many other states.

However, you should beware of the market oversaturation in Michigan, as there are currently around 500 retail dispensaries in the state. The demand for the product is still great, but the prices are going down because new dispensaries keep opening almost daily. That is also partly because of a $6,000 license application fee and the fact that Michigan currently doesn’t have a limit on the number of dispensaries in the state.

California

California cannabis businesses banked $5.21 billion in taxable sales in 2021. The state of California has a 15% excise tax rate and a 7.25% plus local retail sales tax rate, so a significant part of the sales money will go to the state government in tax returns. But even with taxes, it still pays off to run a cannabis dispensary in California as the industry is flourishing because of the large market potential.

Cannabis for recreational use officially became legal in California in 2016, and the sales began in January 2018. There were 866 licensed dispensaries in California in January 2022 and 374 delivery businesses that were serving cannabis consumers around the state. Before applying for a license in California (the application fee is $6,000), you should check what cities are accepting new applications at that moment.

Massachusetts

Massachusetts is another state you should consider when considering where to open your dispensary. Legal retail sales of cannabis didn’t start before November 2018, even though voters legalized cannabis in 2016. Massachusetts has a 10.75% excise tax rate and a 6.25% retail sales tax, with a local option of an additional 3% excise tax. 

Massachusetts is still a good option for a dispensary because of the higher than average retail price of cannabis. The costs of running a business, including real estate and licensing, are also a bit higher. The application fee for opening a dispensary is $1,500, and if you get approved, the annual license fee is $10,000. Applicants praise the application process as straightforward, and reports indicate that you can receive your license in 90 days.

If we add the fact that Massachusetts exceeded $3 billion in gross sales in May 2022, we can say beyond doubt that you should at least consider this state as a home for your cannabis dispensary.

Alaska

Alaska could be a good option for you if you are not afraid of the rough climate and a smaller market. Alaska was among the first states to start with cannabis retail sales in October 2016, and the market has been active and expanding ever since. The license fee is $5,000, and the excise taxes are pretty high, standing at $50/ounce for flowers and $15/ounce for stems and leaves.

What ranks Alaska among the cheapest states to open a dispensary is the favorable legal and licensing environment for starting a cannabis business, alongside the fact that there is no sales tax. Also, Alaska has an above-average retail price for cannabis, probably due to high excise tax rates.

There are also other states we encourage you to consider, such as Arizona, or New York, for example. These are growing cannabis markets that offer plenty of opportunities for entrepreneurs looking to start their cannabis business. You should also keep an eye out for Washington and the moment they start accepting dispensary license applications again, as it is one of the biggest markets in the country.

Of course, wherever you plan to start your cannabis dispensary, don’t forget to insure your business. Unpredictable events can strike anytime, and it’s better to be prepared if they do. Investing in insurance means investing in a financial safety net for your business, as cannabis business insurance costs are far lower than the cost of having to deal with unfortunate events or lawsuits alone.