The cannabis retail industry has grown exponentially, and as per MJBizDaily’s latest factbook, a dispensary makes close to $1000 in revenue per sqft of retail space. Dispensary profit margins could vary depending on which state you are doing business in, but most cannabis retail stores are more profitable than other retail sectors, including pharmacies. On average, dispensaries across North America have been making a net profit margin of 15% to 20%. Many new states, including New Jersey and New York, have recently legalized cannabis for recreational use, and multiple entrepreneurs want to venture into this lucrative business. This blog post covers how much it costs to open and operate a dispensary, which states have higher prospects, and how much money dispensary owners and cannabis retail employees can make.
How Much Does it Cost to Operate a Dispensary?
Before you open and start selling cannabis at your dispensary, the first step is to obtain a legal license and pay the annual fee, which alone can sometimes cost up to $100k in some states. Subsequently, you will need to acquire real estate for your dispensary premises, do renovations, purchase equipment, negotiate with suppliers, hire and train staff, etc. All this can add up to $1 million or more in initial investment. Daily dispensary operating expenses can range between $1k and 10k, depending on your location and space. Before launch, don’t forget that you’ll need a compliant POS system to tender sales, a security system, and a sufficient supply of cannabis inventory to sell. Of course, employee wages, marketing costs, and other professional services fees must be taken into account as well. Our complete blog on the true cost of opening a dispensary paints a more comprehensive picture.
How Much Profit Does a Dispensary Make?
The average dispensary net profit margin can range between 15% and 21%, as per Leafly. But if you open a dispensary in a new market or in a state where taxes and operating costs are lower, you can make significantly more money. According to MJBizDaily Factbook 2022, cannabis retail sales in the US will reach $40 billion in 2023, an increase of almost 50% compared to 2021. As more new markets are coming online, there are opportunities galore for cannabis entrepreneurs, and a first-mover advantage will lead to higher profits in these markets than in established ones. In an established market like California’s, studies have estimated long-term profitability of 12% for cannabis dispensaries.
- Across all states and provinces, dispensaries make $1.2 M to $2M in gross revenue in Canada and $2.1M to $3M in gross revenue in the US.
- For an average of $2M revenue per year, with at least 12% profit, dispensary owners can take home a minimum gross profit of $240,000.
State-Wise Comparison of Costs
Covering your dispensary opening and operating costs requires generating significant amount of revenue. Efficient operations and smart decisions will help increase profits while simultaneously reducing your expenses. Costs can vary depending on the state you are operating in. If you decide to open a dispensary in California, you can expect to pay the fees listed under the “High” column in the table below, while Colorado would fall in the “medium category. While initial license fees in New York and New Jersey are quite low, other operating costs will range between medium and high. On the other hand, dispensary operating costs in states like Missouri, Mississippi and New Mexico would be “low”.
How Much Money do Dispensary Owners & Employees Make?
Dispensaries are known to make profits, so it’s safe to say that most people make good money. Many dispensary owners pay themselves an annual salary of about 10% or more of their dispensary revenue. And as legal cannabis prices fall, dispensary profit margins will inevitably increase. But there are a lot of responsibilities that come with owning a dispensary, including navigating legal hurdles, ensuring compliance with regulations, and avoiding any tax or license violations. If that’s not your cup of tea, you can still work in a cannabis dispensary as a budtender and make decent money. Since there’s still a stigma associated with cannabis, dispensary owners pay budtenders a higher rate than the minimum wage to attract good talent. A budtender can easily make more than $20/hour, while cannabis store or inventory managers earn more than $30/hour.
How Can You Maximize Dispensary Revenue & Profits?
Dispensary sales can vary over the year, and no day would be the same. While on certain holidays and 420, the cannabis industry’s biggest celebration, cannabis retail stores can clock revenues of up to $15k, regular day average sales range between $5k and 6K.
- Know Your Competition: As the industry grows, competition is expected to intensify. Your dispensary must adapt to the changing marketplace and adopt tactics to improve upon what your competition is doing.
- Diversify Product Portfolio: Profits in edibles are consistently higher than in other cannabis products due to the enhanced regulatory burdens. Keep prices of in-demand products higher to ensure you cover the costs of loss-making product categories.
- Set the Right Price & Offer Promotions: Dispensaries are notorious for having high inventory costs. Sell your products above the break-even point to make a profit but offer promotions on expiring inventory to avoid wastage.
- Streamline Operations & Inventory: Identify your operation’s daily functions and look for ways to reduce costs. By controlling and managing your inventory efficiently with a compliant POS system like Cova, you can easily streamline your dispensary operations.
- Cannabis E-Commerce & Delivery: With changing consumer preferences, you can lose out on customers if you don’t have an online cannabis store or offer delivery services. In fact, most dispensaries make higher profit margins through these channels of sale.
A dispensary can be extremely profitable and you can make a lot of money if you follow the best practices and avoid making mistakes. Listening to what customers want and having the tech to support the growth and expansion of your cannabis retail business should be part of your strategy. With Cova Software as your dispensary technology partner, you will always stay ahead of the competition. Subscribe to our blog for regular tips and guidance on dispensary success, or book a demo to learn more.