Cannabis Dispensary Profit Margin Insight

Cannabis Dispensary Profit Margin Insight

Operating a cannabis dispensary? Thinking about dipping your toes in the cannabis industry as a dispensary owner?

In this post, we cover everything you should know about operating a successful cannabis dispensary from a financial perspective.

Looking for expert assistance managing your legal cannabis business’s financials? Northstar is ready to increase your dispensary’s profitability!

Contact us now to learn more about how we’ll enhance your weed profits with the right financial services.

average dispensary profit margin example

What is the Average Dispensary Profit Margin?

Whether you’re operating in medical or recreational marijuana, your average profit margin is important. Besides the cost of opening a dispensary, other expenses exist – and these will impact your profit margin.

Medical and recreational marijuana cannabis dispensaries usually operate with an average net profit margin between 15 and 21 percent after accounting for taxes. However, equally important to note is that this percentage varies in accordance with state or provincial regulations.

The cannabis dispensaries distributing medical marijuana and recreational cannabis usually have the best net profit margin. However, creative recreational dispensaries can dominate the dispensary space, too.

Cannabis Industry Banking Fees

Operating Expenses

After your initial investment to open your doors, you’re ready to operate. But ongoing expenses can affect profitability.

Here’s a list of the expenses likely to affect your operating profit margin:

Operating Expenses cannabis dispensary jars of buds

Cannabis Real Estate

Besides the initial licensing fees for cannabis businesses, dispensaries should expect to spend at least $100,000 annually in rent. But if you find real estate for cannabis that requires renovations, this could increase the initial cost to $50,000 or more.

However, if the cannabis dispensaries locations are purchased outright, dispensary owners mainly have to worry about property taxes impacting their net profit margin. For additional insight, make sure to check out our post on buying commercial cannabis property.

Cannabis Industry Banking Fees

Part of your estimated annual revenue will go towards banking fees. It costs money to have your own growing business, but the cost of banking is higher in this grey-area space.

Since cannabis is still technically federally illegal in the US, many banks still refuse to work with dispensaries. However, it’s still possible to work with credit unions and private marijuana banks in some regions. Even with this being the case, some of these organizations will charge holding fees as high as $2,000 per month.

cctv and cannabis image

Electronics

Cannabis businesses need electronics to operate successfully. Each square foot of space could be holding thousands or even tens of thousands of dollars worth of inventory. So, you’ll need a security system and a fully compliant POS system to manage your inventory.

cannabis advertising

Advertising Budget

Advertising budgets in cannabis vary, of course. But, depending on your location, you may need to invest more than a quarter of your annual revenues in an advertising budget to compete.

cannabis lawyer attorney

Attorney on Retainer

While a dispensary makes money, these earnings don’t always come without risk. This is why it’s a good idea to have an attorney on retainer.

Dispensaries are especially vulnerable to lawsuits. Thus, having an attorney ready for a worst-case scenario situation is always ideal in this space. This could cost up to $50,000 annually.

cannabis dispensary employees staff

Employees

Even a smaller dispensary serving the adult market will need a team to operate successfully. Depending on the size of your cannabis operation, your annual payroll could be $250,000 or more!

Operating Expenses

How Much Does a Dispensary Owner Make?

How much a dispensary owner makes depends on several variables. For example, medicinal weed sales might earn more in one cannabis market than it does in another. However, in some spaces, medical marijuana might not be as popular as adult use.

Furthermore, your cannabis business might grow its own marijuana indoors. This would minimize your inventory cost while allocating some of your operating income towards elevated utility costs.

The money dispensaries or cannabis retailers spend on inventory varies. Some might spend more to supply stores with special medical-grade strains while others need to focus on stocking other cannabis products like extracts or edibles.

Operating dispensaries isn’t an exact science. But you can learn a lot from your sales data and use this to increase your annual revenue and average profit margins.

But how much money should you expect as a dispensary operator? If your business generates over $5 million annually, you could expect to pay yourself an annual salary of $500,000+.

how much does a cannabis dispensary in sales

How Much Does a Dispensary Make in Sales?

Dispensary sales are much like coffee shops; annual sales depend on several factors.

Think about the market competition. Dispensaries focusing on patient access to marijuana can run a profitable company. But they miss the adult-use market.

However, entrepreneurs interested in operating a dispensary in the recreational marijuana space will need a strong marketing campaign to acquire customers. Medical dispensary businesses will also need marketing, but the operation can become profitable based solely on word of mouth if they’re in the right location.

If a location is saturated, running a profitable marijuana business becomes more difficult. Business opportunities become more profitable with less competition, and this holds true in cannabis, too.

cannabis and money

Tips for Maximizing Dispensary Profit Margins

Find Your Break-Even Point

Use the break-even formula to determine your break-even point. This is the point at which marijuana dispensaries break even, meaning this is the minimum dispensaries must earn to continue operating.

Check each month’s revenue receipts to determine whether you’re within the threshold of breaking even. Marijuana dispensaries are notorious for having high inventory costs. But if you’re selling enough product to cover all costs and then some, your cannabis supply store could be running at a profit.

Research Your Competition

Marijuana prices have been dropping throughout the US. As more competition enters the space, more marijuana is available, and this drives the price down.

Look at your competition. They likely use professional packaging, sales, and digital marketing to increase their market share. See what you can do and how you can improve upon what your competition is doing.

Improve Your Product Offerings

Whether you operate a recreational cannabis supply store or a dispensary focused on medical marijuana, you’ll need to offer more than just cannabis.

You need unique and preferred dispensary products to stock your shelves.

You might even go the extra mile for your customers by offering their favorite infused snacks or drinks. You can win over customers by analyzing what the market demands.

For example, your average supermarket might notice that more customers are looking for organic items. To compete with the local Whole Foods Store, it might begin offering more organic options.

For a dispensary, you might notice that more people are looking for quality concentrates. If this is the case, sourcing these products from top producers could be a good idea. While you might need to charge a premium, you could maximize your profit margins by offering products no one else is offering.

The same goes for impressive flower strains, edibles, and other product offerings.

Offer Promotions

Doing promotions on a limited-time basis is a good way to increase dispensary sales. And if it’s something you can purchase in bulk at a great price, you could increase your profit margins tremendously with the right promotion.

For example, you can run a promotion offering a first-time discount on concentrates on first visits. You could even try implementing a loyalty program that offers customers high-quantity discounts for purchasing regularly from your dispensary.

You might also consider providing a daily deal. You could offer 50% off a single item or a free gram with a purchase of an ounce.

Streamline Your Operations

One of the simplest most direct ways to optimize a dispensary’s profitability is to make it more efficient. Identify your operation’s daily functions and look for ways to reduce costs. With the right system of checks and balances in place, you can ensure your business is operating as cost-effectively as possible.

Business owners should also make every effort to only carry the products they need. Being selective about inventory will help save on monthly carrying costs while minimizing costs related to these risks.

For example, if you’re already paying rent for space, using that space effectively can increase dispensary revenue and profits. What’s more, adding storage shelves or cabinets to that space can help you store more product, allowing you to purchase in bulk at a discounted rate.

Manage Your Inventory

Inventory control is one of the most critical aspects of operating a marijuana dispensary. Government regulatory requirements in the US demand dispensaries closely monitor their inventory. Without a POS system in place to manage inventory data in real-time, inventory audits and discrepancy reporting are nearly impossible, and this can result in costly compliance violations that put dispensaries out of business.

Also, if you lose track of what you have, you could find yourself with excess products and nowhere to store them. Or worse, if your records aren’t accurate, you could run out and jeopardize the health and well-being of your customers.

You can avoid these issues by ensuring that your inventory records are organized and up-to-date. This can also help you make better purchasing decisions moving forward.

Consider Costs

Staying mindful of dispensary costs is essential for success in this competitive industry. Profitability depends on bringing money in. But if costs become too excessive, this can become a serious problem.

Regularly monitor your dispensary expenses and make adjustments as needed. Focus on the expenses that have the most significant impact on the business’s profitability, and outsource critical non-retail operations to experienced professionals.

Think about your marketing activities and how you can enhance them. Use your sales data insight to get the most out of your marketing budget, as well.

Dominating the Cannabis Industry with Northstar

The marijuana industry is growing exponentially every year, and attracting more people to the market means that there’s room for many dispensaries to do well in spite of competition from larger businesses.

Looking to increase your dispensary’s profitability? Northstar scales dispensary profit margins successfully with the right financial guidance.

Contact us now to learn more about how we’ll grow your dispensary in this budding space.

If you liked this post, here are a few others you might enjoy, too!

How to Become a Legal Grower in California

How to Become a Legal Grower in California

Becoming a legal grower or cannabis nursery business operator in Cali might seem like a daunting task, especially if you’ve been making your living as a part of the legacy industry. But while it takes some time to acquire the right cultivation licenses, cannabis businesses that go through the steps to become legitimate ultimately prosper long-term.

The cannabis industry is thriving in Cali. While regulations ensure the state’s medical marijuana patients and recreational consumers stay safe, cannabis growers must do their part to guarantee compliance.

Cultivation laws can be a bummer for some, but for most, these rules ensure cultivation licenses for each qualified cultivation facility. This article covers the ins and outs of obtaining a cultivation license in California – including some of the license fees – while bypassing run-ins with local law enforcement.

Guide Your Grow with Northstar

Interested in scaling your cannabis cultivation operation in Cali? Northstar has you covered!

Contact us now to learn how we can guide your budding marijuana business in California with the right financial services.

governor jerry brown in california

History of Adult-use & Medical Marijuana in Cali

Governor Jerry Brown officially signed the Medical Marijuana Regulation and Safety Act (MCRSA) into law on November 8, 2016. The law includes three separate bills (AB-266, AB-243, and SB-643), which established the foundation for medical marijuana regulations and the state’s licensing program.

Medical marijuana was legalized in Cali in 1996. But the state has come a long way since then.

At this point, the state has beyond 2,800 marijuana businesses operating. This industry is on track to become a billion-dollar industry, which is why both adult-use and medical marijuana growers like you need the insight to join the legal space.

Legalization has also encouraged other states bordering California, like Arizona and Nevada, to implement similar frameworks. And as more states follow suit with legalization, we can expect cannabis grow businesses to enjoy even more support in the community.

California ignited the cannabis craze in the United States, and with this legislative progress, we’ve observed others following in this state’s footsteps.

As time passes, we expect other states to progress to Cali’s level, but for now, let’s cover this state’s cultivation laws for some additional insight into the way growers can operate in California.

Cannabis grower contemplating cannabis Cultivation Laws in Cali

Cannabis Cultivation Laws in Cali

A qualified patient is legally allowed to cultivate medical cannabis under the Compassionate Use Act. However, they need a physician’s recommendation to use and grow their own cannabis for medical purposes.

The Compassionate Use Act (CUA)

The CUA allows a qualified patient to possess up to eight ounces of dried cannabis and cultivate as many as six mature plants.

Because this act doesn’t allow for dispensaries, patients are typically allowed to grow the amount they need for personal use only. While no one can deny that growing in your own home is convenient, there are some drawbacks – namely law enforcement.

California Proposition 64

California Proposition 64, also known as the Adult Use of Marijuana Act (AUMA), allows adults to grow six plants per land parcel in Cali. But locals are allowed to “reasonably regulate” cannabis grown for personal purposes, even if it’s for a qualified patient. Courts are also allowed to ban personal medical marijuana cultivation, which has fueled the state’s medical marijuana program.

While those with a medical marijuana card, including a primary caregiver, can grow to fulfill a qualified patient’s medical needs, a medical patient still needs access to professionally grown medical cannabis. This is why commercial cultivation licenses have become essential.

Locals can license commercial growers, but this requires a license from the California Department of Food and Agriculture. In some instances, permits may be necessary from the state or local Water Board and Fish and wildlife, as well as CEQA analysis.

To learn more about your local ordinance code, you’ll Google the name of the county or city and the word “code.” You can also check for websites listing your locality’s marijuana or cannabis codes.

In some cases, the online listings may not have been updated for a while. With this being the case, you can look at your county or city’s council or board meeting agendas online to see the latest ordinances available.

Water Boards Cannabis Cultivation Policy

The Water Boards Cannabis Cultivation Program was placed in the state’s regulatory code by the Office of Administrative Law on December 18, 2017. This program includes four primary parts that address potential water quality and quantity problems that relate to growing cannabis.

The Cannabis Policy sets principles and requirements for cannabis farming activities. These rules protect instream flows and water quality by ensuring water diversion and waste discharge from cannabis cultivation doesn’t damage water quality, riparian habitat, wetlands, springs, and aquatic habitats.

As a cannabis cultivator, you’ll need coverage or waiver from either one or both of the State Water Board cannabis cultivation regulatory programs. To get an expedited water right for cannabis farming activities, you’ll need to opt for the Cannabis Small Irrigation Use Registration Program.

Cultivation License Requirements for Cannabis Businesses

Cultivation License Requirements for Cannabis Businesses

Even if you plan to grow medical marijuana for those holding a medical marijuana card, you’ll need a cultivation license to grow your own cannabis commercially. According to Cali’s licensing process, here are the stages and licensing fees associated:

  • Stage 1: Preliminary Determination of Eligibility $3,258
  • Stage 2: Initial Ranking $701
  • Stage 3: Second Ranking $1,790
  • Stage 4: Public Meeting and City Council Final Selection $1,937

The California City Police Department also conducts a criminal background check on all applicants during the first stage. Since resources to conduct these checks are limited, just six applicants can be processed per day. Thus, you’ll need to schedule an appointment. Keep in mind, there’s a $78 fee you’ll need to pay for each background check.

cannabis cultivator contemplating Cannabis Business Cultivation License Requirements

Cannabis Business Cultivation License Requirements

Location, location, location! Applicants must submit a “Zoning Verification Letter” to the Planning Division in the City Hall. This documentation comes from your local Public Works Department, and the review will take around two weeks and costs $250.

While it might seem like a complicated process, it licensing for cannabis growers has several tiers. Here are the options:

Tier 1: Specialty

Tier 1 growers can use a space that contains as much as 5,000 sq. ft. of canopy or up to 50 mature plants on non-contiguous plots. The types of licenses included in this tier are License 1 (Specialty Outdoor), License 1A (Specialty Indoor), and License 1B (Specialty Mixed-Light).

Tier 2: Small

Tier 2 cultivators are allowed to grow between 5,001 and 10,000 sq. ft. of canopy. The types of licenses included in this tier are License 2 (Small Outdoor), License 2A (Small Indoor), and License 2B (Small Mixed-Light).

Tier 3

Tier 3 grow ops can be between 10,001 sq. ft. and one acre of canopy. However, these licenses have limited access to vertical integration options. The types of licenses included in this tier are License 3, License 3A (Indoor), License 3B (Mixed Light), and License 4 (Nursery).

indoor cannabis cultivation operation

Steps for Cali Cannabis Cultivation License Success

Failing to prepare is preparing to fail, and without the right preparation, it’s quite challenging to get a cultivation license in the cannabis industry. If you’re considering growing cannabis, you’ll need a license in California.

Keep in mind, the most important aspect to overcome during the application process is site selection. In fact, you’ll need to find a location that meets all regulatory requirements for your cannabis grow license.

If you have a grow site already selected, great! Now’s the time to study up on the state’s rules and regulations involved with cannabis grow licenses.

Here’s a list of the steps you’ll need to take to acquire a cannabis grower’s license in Cali:

women creating business plan for cannabis in california

Step 1: Create a Business Strategy & Vision Plan

At this stage, you know you want to grow cannabis. But do you know why?

Consider your commitment and capabilities, and figure out how your cannabis business will best serve the masses. Think about your goals, resources, and experience to determine how you can best contribute by growing cannabis.

For example, do you want to grow for the primary caregiver holding a medical marijuana card and patients? Or are you more interested in growing adult-use cannabis?

Think about your long-term goals here. You might find it appealing to grow quality product for every primary caregiver and qualified caregiver in your locality. However, you might be more interested in growing dried cannabis for manufacturing purposes.

But what if it’s only the lifestyle?

In some cases, wannabe cannabis business owners want to grow cannabis to live the lifestyle. They don’t consider marketing or how they’ll scale the operation with retail sales. With this in mind, more often than not, these individuals don’t last long in this industry.

As many plants grow throughout the state, the competition remains fierce. Just because you have a grower’s license in California doesn’t mean you’ll successfully grow marijuana plants a qualified patient needs.

Each qualified patient has his or her own set of unique needs. From cannabinoid content to terpenes, you’ll need to grow specific strains to meet those necessities.

This isn’t to say recreational cannabis isn’t challenging to grow. However, at the same time, it’s crucial to consider the role you’re willing to play in this sector.

This is where your strategy will play a pivotal role in your success.

If your goal is to scale your operation to the point that it’s publicly available on the stock exchange market, you’ll likely have to think about your business differently than someone who is simply in it for the lifestyle.

There’s competition in Cali for cultivation licenses, so if you’re more aggressive in acquiring your market share, you’re more likely to succeed at growing cannabis consistent for the market you plan to serve.

Whether you plant to grow medicinal cannabis for medical use or commercial cannabis to use for a specific cannabis product, the most lucrative businesses have a strategy in place – and you should, too! This strategy should also include how you’ll handle your California cannabis business tax liabilities.

cannabis property acquisition in california

Step 2: Property Acquisition

Local ordinances can be quite restrictive regarding cannabis business activities. To avoid criminal prosecution, it’s crucial to follow all restrictions and guidelines in place, including any legal advice you get from experts.

Restrictions, regulations, and permits from each locality determine where and how you can grow cannabis. To find and obtain a permissible property, you’ll need to learn more about how your local government regulates cannabis plants.

To cultivate cannabis legally, you’ll need to know about the requirements. The federal government still prohibits commercial and personal cultivation. However, some landowners will still allow those seeking a commercial license to grow cannabis within state-established limits, offering a lease agreement on a case-by-case basis.

Consider how the property can fulfill your cultivation needs and whether you can grow adult-use or medical marijuana with a cultivation license. Most of the time, if the property is owned, you probably cannot grow cannabis on it. However, in rare instances, a landowner might be willing to allow it, particularly if you plan to cultivate it as part of California’s Medical Marijuana Program.

After you get your property, you’ll need to obtain a Conditional Use Permit/Land Entitlement.

The local government and community might attempt to block your approval. Since local ordinances offer protection to residents, your property might not allow you to grow medical cannabis or the likes. This is why research is crucial at this stage.

You’ll begin by analyzing the city and county you plan to operate in. After you determine what the city or county allows for cultivation, you’ll need to check for green-zoned parcels that meet the requirements for your grow.

Consider the logistics for the property. For example, the surrounding resources, employee commute time, and utility accessibility are crucial for a successful grow op.

Think about the buildings or structures on the property, too. In some cases, these could be problematic, especially if they’re inefficient or no good for cultivation.

Consider the following to ensure your cannabis plants have a happy home that supports your success:

  • Access roads
  • Bodies of water
  • Topography
  • Trees
  • Walkways

Make sure to analyze this data to determine zoning restrictions that could impact workflow or disqualify the property in another way.

man preparing Application for Approval & Cannabis Licenses

Step 3: Prepare Your Application for Approval & Cannabis Licenses

Now that you have a property to grow marijuana plants and a facilities plan, you’ll need to prep your application for the California Department of Cannabis Control (CDCC).

A cultivation license isn’t simple to obtain; local and state officials will want you to have your business plan organized and ready to go. Regardless of whether you need a cultivation license to grow medical marijuana or adult-use marijuana plants, local approval is essential.

State agencies have recently been consolidated under the CDCC to make the process easier, including the Bureau of Cannabis Control (BCC). This is where you’ll get your grower’s license in California. However, when it comes time for tax season, you’ll need to work with the California Department of Tax and Fee Administration.

To obtain your medical cannabis grow license, your business plan should have all of the essentials, including:

  • Compliance inspections and audits
  • Tracking and trace compliance
  • Information about required permits and licenses
  • Safety and security outlines
  • Community relations insight
  • Odor control plan
  • Operations outline

Curious about how taxes will impact your business? Learn about California Cannabis Business Tax now.

Submitting Application Package to State for Approval

Step 4: Submit Application Package to State for Approval

State approvals can be quite in-depth; they require plenty of paperwork and the right technical execution to go through.

Initially, you’ll need to submit your application package to several state agencies. However, this has been made a bit easier with the consolidation under the CDCC.

Ultimately, this means having an excellent business strategy in place and all of the right documentation for your application. This is how you’ll make processing as easy as possible.

man speaking to get local approvals

Step 5: Get Local Approvals

Once you have your paperwork together, you’re ready to start seeking local approval.

Local government officials often worry about recreational and medical cannabis being cultivated around their homes. Thus, you’ll need to give them every reason possible to like your operation.

If there’s any reason these officials don’t like your business, you may find your project without viability.

At this stage, you’ll have technical hurdles to leap, along with political challenges to overcome. Ultimately, you’ll need to sell yourself as a cultivator and your growing operation to the local government officials to make this work.

You’ll need a “discretionary” conditional use permit (CUP). This means you’ll need to present your plan at a public hearing. Approval or denial will come to a vote from the city council or planning commission.

For your commercial cannabis grow to operate, you’ll need permits, cannabis licenses, and certifications from other local departments. This includes more environmental assessments.

The process takes time and additional funding if state regulators believe your commercial cannabis grow could pose a threat to the environment. But if you understand this before you apply, you can determine ways to reduce these possible impacts in advance.

cannabis cultivator in california standing in grow room

Step 6: Maintaining Permits and Licenses

After getting your commercial cannabis licenses, approvals, and permits, complying with ongoing regulations is essential. You’ll need to know the rules at the local level and state level to ensure your cannabis operation can continue growing.

To ensure you don’t limit yourself to only one harvest, you’ll need to continue monitoring and reporting all of your business’s operations. This includes tracking your inventory through METRC.

Keep in mind, local and state regulators will inspect your cannabusiness regularly, and annual renewal is essential for multiple license types. While there was a ‘logjam’ with cannabis provisional licenses in Cali, Governor Newsom’s California Comeback Plan should help.

Vertical Integration with a dispensary in california

Step 7: Optional Vertical Integration

Over the past few years, it has become apparent that the entire supply chain operates better when it’s controlled. This is why supply chain control in Cali has become easier through these vertically integrated opportunities.

While some states ban vertical integration in cannabis, the main idea here is that this has the potential to enhance quality control and public health by keeping the supply chain more in control.

It starts by limiting third parties from getting involved in grow operations. Most of the time, cannabis plants go from cultivation to manufacturing before distribution manages the supply chain. Then, the products end up in retail shops or dispensaries.

However, vertical integration does not include testing services. This is how the state ensures that cannabis for adult and medical use is tested without bias.

Is the Market Oversaturated with Growers?

Cali is full of grow-ops working for their share of the market. Thus, it’s crucial to differentiate from other operations.

However, there’s more than enough market share to go around. Investors, business operators, and landowners that focus on cannabis have a lot of success in cultivation.

California’s cannabis space is the largest market on the planet. Each year, this industry’s demand is expanding, offering new opportunities for those interested in getting involved.

There’s no easy way to say it; Cali’s cannabis sector is tough. It’s going to take large investments and hours upon hours of work, including but not limited to manual labor. Farming marijuana isn’t easy, but for those who love it, it’s worth the effort.

Ultimately, the level of success you experience among the other California cannabis growers depends on a few variables. But with the right funding, perseverance, and knowledge, you can become successful growing marijuana for Cali’s medical and recreational cannabis consumers.

Growing Cannabis in Cali Commercially

Growing cannabis in California isn’t for the faint of heart. While license fees can be costly, it doesn’t solely come down to your funding. It takes effort, dedication, and plenty of compliance every day.

But this isn’t meant to scare you away from a potentially successful Cali cannabusiness, especially if you plan on following through with your project.

In order for you to comply with state regulations, that means paying attention to every detail. The more effort you put forth at the beginning stages, the better off you’ll be.

Grow Your Grow with Northstar

Looking to grow a cannabis grow facility in Cali? Northstar is here to help!

Contact us now to speak with one of our experts and learn how our financial services can guide your grow facility’s success!

How to Start a Cannabis Business in Michigan

How to Start a Cannabis Business in Michigan

Wondering how to start a legal cannabis business in Michigan? You’ve come to the right place.

The Great Lake State officially legalized marijuana, and as more progress is made, entering the Michigan cannabis industry is becoming an option for many. This is one of the fastest-growing sectors in the state, so it makes sense that you want to get in on it now.

Before you begin, it’s vital to learn about the laws governing legal cannabis businesses in Michigan. At this point, we must follow three marijuana laws; the Michigan Medical Marihuana Act, or “MMMA,” the Medical Marihuana Facilities Licensing Act, or MMFLA, and the Michigan Regulation and Taxation of Marijuana Act, or “MRTMA.”

Marijuana Business Laws in Michigan

Michigan Medical Marihuana Act

The MMMA is the cannabis legislation in Michigan that permits medical marijuana use in the state. This document outlines the protections offered to medical marijuana users, as well as provides a system of registry identification cards for qualifying patients and primary caregivers.

Furthermore, this legislation allows “caregivers” to grow up to 12 plants for each registered MMJ patient. The maximum number of plants these “caregivers” can grow is 72. However, the only people allowed to purchase this marijuana are the caregiver’s registered patients.

Medical Marihuana Facilities Licensing Act

Through the MMFLA, medical marijuana businesses can become licensed. This legislation lets dispensaries sell cannabis products to registered patients. In some cases, the dispensaries can even sell to out-of-state patients. 

Michigan Regulation and Taxation of Marijuana Act

The MRTMA is the adult-use cannabis licensing law. This legislation lets licensed recreational marijuana businesses operate in the state. Now that the MRTMA is in place, recreational marijuana businesses in Michigan can sell these products to anyone 21 years and older.

Interested in starting a cannabis business in Michigan? Contact us today to learn more about how we can help.

How to Start a Cannabis Business in Michigan: Step-by-Step In-Depth

Knowing how to start a marijuana company in Michigan means understanding what it takes to make it happen. Here are the steps to take and things to consider as you set out on your endeavor:

Step 1: Finding a Niche

Before establishing a cannabis business in Michigan, you’ll need to decide what you’ll do in the sector. Would you like to begin cultivating cannabis in Michigan? Or perhaps you have some other existing business or skill you’d like to pivot to support cannabusinesses. The industry opportunities include – but aren’t limited to – branding and licensing, ancillary companies, and plant-touching.

Branding & Licensing

Now that cannabis companies can operate in Michigan, you’re allowed to sell your own branded marijuana flower and infused products. If you’ve ever been to a Michigan dispensary, many of the brands you’ll observe aren’t licensed cannabis companies. Instead, these businesses have licensing/white labeling agreements with a Michigan licensed cannabis processor to manufacture these products. The majority of these brands are offering products produced by one of several cannabis processing facilities in Michigan.

This translates to the ability to start a cannabis brand without paying the costly start-up fees of getting a Michigan cannabis license under the MMFLA or MRTMA. So, suppose you’re looking to launch a brand selling flower, edibles, cartridges, or another infused product. If that’s the case, you’ll need some start-up capital, a clear business plan or pitch deck, and a legal professional who has experience negotiating cannabis licensing and white label deals.

Ancillary Services

The first businesses that come to mind when wondering how to start a cannabis business in Michigan’ are usually “plant-touching” businesses. However, some of the most profitable opportunities are in the ancillary business sector.

You might have an existing skill, business, or service that you could pivot to serve the cannabis industry. Perhaps you’re a digital marketer, real estate broker, general contractor, insurance agent, or excel in another career that could help cannabis business operators.

Regardless of whether you have a directly translatable professional skill, there are other opportunities to become involved in the cannabis ancillary services or products market. With so many ways to participate in the Michigan marijuana industry, you’ll need to choose a route to take.

For example, software developers can develop apps to serve the industry. Or manufacturers can pivot towards creating smoking accessories. As with the licensing and branding idea, you won’t have to pay licensing fees or spend time getting a cannabis license.

Plant-Touching Cannabis Businesses in Michigan

Starting a plant-touching marijuana business in Michigan involves establishing a business that actually handles the plant itself. These types of companies cultivate, dispense, process, test, and transport plant matter. Cannabis lounges and cannabis events also are included in this category because Michigan demands these businesses get an MRTMA license to operate.

Even though plant-touching cannabis businesses in the Great Lakes State are costly to start and involve an extensive and time-consuming licensing process, these can be quite profitable. If you’re considering starting a plant-touching marijuana business in Michigan, feel free to contact us for assistance at any time.

Step 2: Creating a Marijuana Business Plan, Including a Budget & Pro Forma

A solid cannabis business plan goes a long way. This should include a start-up budget and pro forma numbers. While you might self-fund your business to bypass investors or financing, a marijuana business plan will give you the framework for your business model and facilitate growth.

The Michigan cannabis industry can be cruel to business owners who don’t appropriately budget their operations. Cannabis endeavors, especially cultivation facilities, almost always go over budget. With this in mind, we suggest adding at least a 15% contingency to your budget to account for potential cost overruns.

Keep in mind; your business likely will not be profitable from the state. Most of the time, you’ll need to establish and grow your customer base. Or, if you’re a cultivator, you might need time to grow your first crop and perfect your cultivation system. Financially speaking, you’ll need to plan for the operating capital your business needs to reach profitability.

Step 3: Structuring Your Michigan Cannabis Business & Building Your Team

Once you’ve chosen your niche and created a business plan, you’ll want to form a Michigan cannabis company and build out your team. Selecting your business structure can involve forming LLCs and corporations. But choosing the right team will include finding people who bring value.

Minimally speaking, you’ll need a cannabis CPA and a cannabis business attorney. This can involve setting up several consultations with professionals specializing in cannabis to find the right fit.

As you’re choosing a cannabis business attorney, look for someone who has experience in cannabis and business law. While cannabis attorneys with criminal law backgrounds 

After hiring someone for either position, you might also be able to utilize their network to find other team members. For instance, at Northstar, we’ve culminated a network of cannabis professionals to support businesses across all niches. This, of course, includes cannabis attorneys.

Professionals with expertise in cannabis will ensure your business’s structuring is right from the beginning, protecting it long-term from the industry’s most common woes. It might be worth bringing in additional partners, cannabis business consultants, and employees to complement your skills in some instances.

For example, if you’re working on a Michigan cultivation facility, you might need to find a master grower. On the other hand, if you’re in cannabis safety testing, you might need someone who has experience running a lab.

As you’re structuring your cannabis business, you’ll need to draft an operating agreement or set up your company’s bylaws. This is where you’ll determine how your business runs. Consider the following:

  • Will you need investors?
  • Who is responsible for what in the company?
  • How will decisions be made?
  • What tax status will work best for your cannabis business?

Your answers here should guide your company structuring, as well as how you’ll manage the business and which tax selections you’ll make. This step is essential as improper cannabis company structuring can cause issues, profit losses, and litigation in the future.

If you’re not operating a plant-touching company, you won’t need to think about the next few steps. Feel free to skip ahead to Step 7 as the next steps solely apply to plant-touching cannabis businesses in Michigan. But, if you’re a plant-touching company, you’ll have to use the following steps to get the right licensing with the Michigan Marijuana Regulatory Agency (MRA).

Step 4: Qualifying for a State Cannabis License in Michigan

While some states like Florida and Illinois limit the number of state cannabis licenses issued, Michigan doesn’t. If you can pass the state’s background check and get a municipally licensed property, you can obtain an MRTMA or MMFLA cannabis license.

The qualifications for owning a Michigan cannabis business are becoming more lenient. Financial statements, three years of taxes, and real estate deeds are no longer required. We’re also seeing less focus on criminal issues.

Now the MRA focuses primarily on business litigation, regulatory history, bankruptcy, and taxes. This means if you’ve been paying your taxes, don’t have outstanding tax liens or deficiencies, haven’t had problems with other governmental licenses, and haven’t been involved in unethical business practices, you should be able to acquire a cannabis business license in Michigan.

Step 5: Identifying and Municipally Licensing Your Cannabis Real Estate in Michigan

After starting your prequalification process, it’s time to begin searching for cannabis real estate in Michigan. As a plant-touching operation, you’ll need a cannabis facility under the MMFLA and MRTMA. This is also up to each individual municipality as to whether you can set up a shop in the area. Since most Michigan municipalities aren’t allowing licensed cannabis companies to operate, it can be challenging to find the right location.

Regardless of such, many Michigan municipalities allow legal cannabis business operations. These include Detroit, Lansing, Grand Rapids, Warren, Pontiac, Traverse City, Flint, and others. 

If you’re looking to obtain a municipally licensed cannabis property, you have several options to consider. Will you buy the property or lease it? If you decide to buy, will you do so on a land contract? This is also known as “terms.” Land contracts are standard throughout the cannabis industry because the lack of banking and lending services for cannabis businesses makes it appealing.

In some cases, you might be able to find a property with a municipal cannabis license or existing cannabis business. There’s also the option to get your own license, of course. But if you find a property that already has a license attached, you can expect to pay a premium for it. If that’s not in your budget, the best option could be to find a property in Michigan eligible for cannabis licensure.

If the property doesn’t come with a cannabis license, you can establish a purchase agreement or contingent lease to save the property as you work on getting your municipal license. Without this action, you might be forced to pay a premium for a property that won’t work for your operation.

Keep in mind; some municipalities cap how many licenses they allow for certain types of facilities. This being the case, there could be a limited application window to obtain one of these municipal licenses. Dispensary licenses, in particular, are usually capped. But some municipalities will limit the number of processors, growers, and other license types for the area, too. This is why it’s vital to check if the municipality is accepting applications for your license type before getting a property.

Step 6: Getting a State Facility License in Michigan

Since you have your prequalification and municipal license in order, it’s time to fully build out your facility and apply for a state operating license. The MRA recommends applying once you’re sixty days from completing your operation’s build-out before applying for Step 2 cannabis facility licensing.

To apply for your final state operating license in Michigan, you’ll need to have your complete plans and submit them to the MRA. This should include your plans for recordkeeping, security, advertising, staffing, and others.

Furthermore, you’ll have to submit to an MRA inspection, along with an inspection from the Bureau of Fire Services (BFS). After you’ve gotten approval for your Step 2 packet and you’ve passed your MRA and BFS inspections, you’ll need to pay the licensing assessment fee. This will vary by license type, but once you pay this fee, you’ll receive an MMFLA or MRTMA license from the MRA – and then, you’ll be ready to start operating.

Step 7: Operating a Cannabis Business & Staying Compliant in Michigan

You’re no longer wondering about the process to legally start up a cannabis business in Michigan – and you’re ready to operate! You have a business plan, and now it’s time to put that plan to use.

At this point, you have funding and a team ready to contribute to your success in the Michigan cannabis industry. But you’ll still have some cannabis compliance-related obstacles to overcome.

Need Financial Help Starting a Cannabis Business in Michigan?

At Northstar Financial, we’re experts in cannabis. Contact us today for expert financial services and guidance.

 

A Quick Professional Guide to Buying Commercial Property

A Quick Professional Guide to Buying Commercial Property

Here at Northstar Financial, we know that buying commercial property for your business or investment portfolio is all about knowing what you want and building a smart sequence of steps to get there. There are so many different types of commercial property ranging from pocket-sized retail to large manufacturing plants that your priorities and confidence are what make the biggest difference in a successful deal.  For cannabis businesses, you’re likely looking for either a spacious growing area or a modest shop space in town. Both usually fall into the mid-range of local pricing.

Whether this is your first major commercial purchase, you are purchasing on behalf of someone else, or you are branching out from a previous routine of investments, it helps to have a road-map. Today, we’re here to outline a quick buying guide for commercial property. Join us for a step-by-step outline of the right way to investigate, prepare, and purchase commercial property.

Buying and Renovating Commercial Property

 

  • Refine Your Priorities
  • Define Your Price Range
  • Compare All Suitable Properties
  • Secure Your Financing
  • Build Your Buying Team
  • Conduct Negotiations
  • Close the Deal
  • Renovate Your New Space

Refine Your Commercial Property Priorities

 

When planning to buy property, your first step should always be to refine your priorities. What are you looking to accomplish with this purchase? What size and features and qualities should the property possess to be a candidate worthy of consideration?

The best way to tackle this step is with three separate lists:

  1. Needs
  2. Wants
  3. Deal-Breakers

In one list, write everything that a property must absolutely have for you to consider it. This includes size, amenities, location, parking, and anything industry-specific that would be required to make the purchase worthwhile.

In the second list, write everything it would be nice to have, but you won’t insist on it. This might include a nice outdoor space, newly renovated infrastructure, an indoor gym or cafe, or other types of business in the nearby vicinity.

In the final list, write down everything that would cause you to walk away from a deal, no matter how many needs and wants it might also have. This list might include poor plumbing, paid parking, a cracked foundation, or certain types of non-compatible neighbors.

 

Define Your Price Range

 

Next, define how much you can afford to put into the purchase. Remember to break this number down. You may have a lump-sum in mind for your total investment budget, but property purchases always involve a mass of costs in addition to the down-payment and loan. These include inspections, title checks, realtor fees, closing fees, utilities, property tax, renovations, and more.

Use this math to calculate the true cost based on the “Sticker Price” listing cost when calculating how much you can really afford or are willing to invest.

 

Make a List to Compare All Properties Available That Meet Your Needs

 

Now that you have a definition of your needs in a building and the listing price that measures up to your budget, it’s time to collect candidates. Work with your agent to find and explore local opportunities that meet your needs. Put together a list of every property in your search radius that might meet your needs both effectively and financially.

Don’t forget to include buildings that can be renovated to suit your needs. Some locations are diamonds in the rough with considerable office renovation benefits. Their imperfections are opportunities to buy at a lower price and transform the space into your dream-facility instead of buying something finished and workable.

With this list, you can compare properties side-by-side based on price, commercial value, attractiveness, and amenities that might sway your decision one way or another.

 

Secure Your Financing

 

Before you take a serious next step, make sure your financing is 100% in order and ready to bid. Talk to your bank and get the loan processed and pre-approved. Target that pre-approved loan with the amount you’re prepared to put down and the maximum loan amount you’d be willing to take out. This gives you room to breathe so that you can reach to your upper-limit for a great place or scale down if the best option is lower cost than your maximum budget.

 

Build Your Buying Team

 

Now that you’re preparing to make a final decision and buy, it’s time to put together your team. In addition to your agent/broker, you will likely also want to line up your accountant, title-checking service, and your inspectors. For certain properties, it’s a great idea to also bring along your favorite renovation contractor to provide a helpful rough estimate of costs for any updates, improvements, and renovations you may want to do if you buy.

 

Run the Numbers on Each Property Candidate

 

The next step is to get serious about each of your property candidates. Work with your team to run the realistic numbers on what it would cost to purchase, update, renovate, and maintain each property on your list. This will reveal the true details of each purchase option beyond the surface listing price and assumed property tax.

Put together a dossier on each property so you can compare them side-by-side on closing costs, upgrade costs, maintenance costs, and comparative value based on your buying priorities.

 

Conduct Negotiations

 

A Quick Professional Guide to Buying Commercial Property

 

When you’re ready to make a bid on one or more properties, contact the sellers and open negotiations. In this phase, you will most need the assistance of your real estate agent/broker and your lawyer to check and double-check each term proposed. Every negotiation is different, and every seller/property combination will provide a unique negotiation experience.

Sometimes, a seller will point out legitimate extra qualities to the building you hadn’t noticed, and sometimes you will need to bring them down based on discovered maintenance concerns. Be aggressive but fair, willing to give and take. Especially if the seller offers to throw in extras like vehicles, furniture and equipment, ongoing sweetheart deal contracts, and more. Assess the value of everything brought up in negotiations and consider each property you negotiate on based on how the negotiations shake out.

 

Close the Deal

 

Finally, when you reach the best possible cost-for-value on a property, it’s time to close the deal. Closing is a lot more complicated than just shaking hands, but you can rely on your real estate agent/broker to guide you smoothly through the title transfer, closing costs, and final contract signing because they have done it dozens to hundreds of times before.

 

Renovate Your New Space

 

When the papers are signed and the new property is completely yours, it’s time to renovate. Almost any commercial building will have a few things you will want to update or change. Many businesses have an interior style based on brand and company culture or the experience you want to create. Every commercial real estate purchase is different, but your renovation contractor can make your vision of a property’s potential into reality and enjoy the considerable benefits of office renovation. Create your perfect office space, hospitality venue, or industrial work environment with the full freedom of a property owner. No need to worry about putting it all back at the end of the lease. You have the deed and this property is yours to transform to best suit your sense of style and the needs of your business.

 

Learn More About Buying Commercial Property

 

Buying a commercial property is a far more involved and carefully weighed process than buying a home because there are so many more factors to consider. Whether this is your first commercial property purchase or you’re looking to hone your skills after rocky previous experiences, the right financial decisions will help smooth the process. Contact us to explore your financial and legal options for buying commercial property in your state.