How to Open a Cannabis Dispensary Legally: Complete 2025 Guide

Is starting a cannabis business right for you?

The cannabis industry presents unique opportunities and challenges. Stuart Titus, president and CEO of General Hemp, emphasized the industry’s potential.

“The whole industry itself is at the very ground-floor level,” Titus said. “We’re certainly nowhere near maximizing what we could do. Look at alcohol prohibition. Suddenly, legalization spurred industries and businesses. We think the same is true for this industry.”

The legal paradox: State vs. federal laws

Cannabis remains federally illegal while being legal in 40 states for medical use and 24 states for both medical and recreational use (plus Washington, D.C.). This creates a complex regulatory environment where businesses must navigate state-specific rules while dealing with federal banking restrictions and tax complications.

“Since we’re not a federally recognized industry, there are many things that are affected,” explained Sara Gullickson, founder and CEO of The CB Advisors. “In terms of regulations, every single state program varies. They’re crafting programs specifically for their environment. So, things that are important in Arkansas might not be as important in Ohio, and so we’re seeing that kind of flesh out.”

To protect yourself and your new venture, consider hiring a business lawyer with experience in the sector. Their assistance will be invaluable for planning, launching and operating your cannabis business.

Industry growth potential

Despite the legal challenges, the cannabis market shows tremendous growth potential. According to Grandview Research, the space could reach $134.4 billion in value by 2034, representing a 25.5% compound annual growth rate. That makes cannabis an attractive space for entrepreneurship, even with considerable regulatory obstacles and tax considerations that other businesses don’t face.

Step-by-step guide to opening a cannabis dispensary

1. Research laws, zoning and eligibility

The cannabis industry is highly regulated, and the rules governing it vary widely from state to state. Before trying to launch a cannabis brand, it’s essential to understand federal regulations and thoroughly research your state and regional rules, ideally with the help of a legal professional. 

Determine the following for your area:

• What type of cannabis businesses are allowed?
• What licenses do you need, and how do you get them?
• What measures must be taken to stay compliant?

You must also inspect area zoning laws as they relate to cannabis businesses and consider your cannabis business’s proximity to residential areas, schools and other sensitive locations. Additionally, assess community sentiment and consider local regulations that may affect operations, such as restrictions on signage or operating hours.

2.  Build your business plan

Create a detailed business plan to ensure your cannabis dispensary idea is viable. Your business plan should include:

• The products your dispensary will sell
• Your venture’s target audience
• Customer personas for your intended buyers
• Appropriate marketing methods
• The staff you’ll need at launch
• Anticipated staff as your business scales
• Employee training protocols
• Proposed business location premises (if the business will have a physical location)
• Security measures
• Quality control measures
• Inventory control systems
• Financial projections, including startup costs, revenue forecasts and operational expenses
• A detailed analysis of how the business will comply with local, state and federal cannabis regulations

If you plan to scale your business, your location should have potential for growth, such as an adjoining unit or a nearby business location. You must also ensure your physical location has robust security to protect your staff and stock, as cannabis businesses may be theft targets due to high-value stock and potential cash availability.

3. Secure financing

Opening a cannabis dispensary is a very capital-intensive process. Compliance costs, security requirements, supply chain complexities and ongoing licensing fees may add to your operating costs. Additionally, tax expenses may be considerable.

However, obtaining funding can be tricky. Cannabis businesses often face challenges when pursuing traditional financing. Consider the following financing options for your cannabis business:

• Self-funding: Many cannabis entrepreneurs turn to self-funding or raising money from friends and family members.
• Investors: Finding investors for your cannabis business is possible. Some angel investors and private equity firms specialize in backing cannabis businesses.
• Loans: Applying for a business loan is typical for many startups. However, relatively few banks work with cannabis businesses. Smaller banks, regional credit unions and some alternative lenders offer cannabis business loans.
• Business credit cards: You may be able to qualify for a business credit card to help fund your venture, though you could run into qualification restrictions.
• Crowdfunding: Crowdfunding platforms like Fundanna are dedicated to helping fund cannabis ventures.
• Startup accelerators: Several startup accelerators and incubators have emerged to help cannabis businesses reach the next level.

Some small business grants are available to cannabis businesses, though these are more likely to go to cannabis-related research groups or businesses focused on cannabis technology.

4. Acquire real estate and essential systems

Before applying for a license, you’ll need to acquire and prepare your dispensary’s storefront. In most states, real estate is a prerequisite to licensing, so take care of this step before applying for a license. Your state may also require you to build-out your location to certain specifications, so be sure you understand what’s required and meet your obligations before moving on to the application process.

Take this time to establish comprehensive operational systems in accordance with state regulations, as well. These generally include:

• Point of sale (POS) systems: Cannabis-specific POS systems like Dutchie or FlowHub are essential for compliance. These systems must integrate with state tracking systems like Metrc or BioTrack and provide real-time inventory tracking, automated compliance reporting, and age verification features.
• Security systems: Most states require 24/7 video surveillance covering all key areas, commercial-grade alarm systems, access control for sensitive areas, and secure storage vaults for products and cash.
• Inventory management: Implement seed-to-sale tracking systems that integrate with your POS and state reporting requirements. This includes real-time tracking, automated auditing capabilities, and secure data storage.

Properly built-out locations stand a better chance of securing licensing. You’ve already made a capital investment in your business, so you’ll want to maximize the chances your license is awarded. 

5. Apply for licenses and permits

Licenses and permits are critical for businesses that deal with the plant — without them, your business cannot legally operate. Unfortunately, obtaining licensing can be costly and arduous, depending on your state. According to Gullickson, balancing detail in applications of limited length has become a specialized skill. 

“[In the past,] when you were sending applications, everyone threw in the kitchen sink — thousands and thousands of pages to confuse people and hope they wouldn’t read it,” Gullickson recalled. “Now, the application process is often to describe in five pages what your operation looks like. You need someone to communicate to an uneducated audience what your policies and procedures look like.”

6. Hire and train staff

Staffing your business is key to a successful launch and seamless operations. It’s advisable to hire employees with experience in the cannabis industry who can help ensure your team stays updated on industry best practices and regulatory changes. 

Consider appointing a compliance officer or advisory board member to oversee operations from a regulatory and governance perspective. Look into whether your state requires criminal background checks on cannabis business employees.

Cannabis dispensaries should prioritize hiring staff with a working knowledge of cannabis products, or who demonstrate the ability to learn quickly. Modern cannabis retailers sell more than just the flower from the plant; they also sell concentrates, edibles, topicals, tinctures, and more. These products serve diverse customers with different needs and interests, and your staff needs to be able to help them all find what they’re looking for.

David Goldstein, director of strategic growth at Green Solutions, advised newcomers to bring in people with professional expertise from other industries who can apply their knowledge to cannabis. 

“It’s important for a startup to run lean but at the same time bring in people who maybe worked in other industries… so they can add their expertise to bring this out of [the] black market into white collar,” Goldstein said.

Estimated costs and license timelines

*The costs of opening a dispensary vary considerably depending on your local market. 

Dispensary licensing costs

Dispensary license costs vary widely across the country:

• Low range: $2,500 (Massachusetts)
• Mid-range: $7,000 – $10,000 (New York, New Jersey)
• High range: Up to $120,000 (California)

Dispensary startup costs

Opening a cannabis dispensary typically requires $150,000 to $2 million in startup capital. According to industry estimates, the average cost is around $700,000 for an average-size facility of approximately 1,800 square feet.

Key cost components include:

• Annual staffing
• Annual rent
• Initial renovations and interior design
• Security systems and equipment
• Initial inventory
• Legal and professional fees

These estimates vary depending on the size of your operation and your geographic location. Research your local market to develop a budget that’s appropriate for your specific circumstances.

Licensing timelines

Expect your total time to open to take between one and two years, at least. Opening a cannabis dispensary is not a quick process.

The typical timeline for dispensary licensing includes:

• Application preparation: 2 – 4 months
• Regulatory review: 6 – 12 months
• Build-out and final inspections: 3 – 6 months

Compliance essentials for cannabis dispensaries

Cannabis businesses must navigate complex compliance requirements that vary by state but generally include:

POS integration requirements

Cannabis POS systems must integrate with state-mandated tracking systems and provide automated compliance reporting, real-time inventory updates, and audit trails for all transactions.

Inventory audits

Regular inventory audits are mandatory, typically requiring both weight-based audits for flower products and unit-based audits for pre-packaged items. Automated systems help streamline these processes and reduce discrepancies.

Security compliance

Security requirements typically include 24/7 video surveillance with specified resolution and retention periods, commercial-grade alarm systems, access control systems for restricted areas, and secure storage for products and cash.

Ongoing renewals

Most cannabis licenses require annual renewal with associated fees and compliance documentation. Maintaining detailed records and staying current with regulatory changes is essential for successful renewals.

Other types of cannabis businesses

Dispensaries are the retail operations that serve cannabis products to customers, but they’re not the only kind of cannabis businesses. If a dispensary doesn’t suit you but you still want to get involved in the industry, consider these options instead:

Breeders

Cannabis breeders develop and create new cannabis strains by crossing existing genetics to produce plants with specific traits like unique terpene profiles, enhanced potency, or improved resistance to pests and environmental stress. This business involves creating feminized, regular, and autoflower seed varieties that are sold to cultivators and home growers. 

Aspiring breeders should have strong backgrounds in plant genetics, agriculture, or horticulture, with formal education in agricultural sciences being highly recommended. The breeding business requires patience, scientific knowledge, and access to diverse genetic libraries to create commercially viable strains that meet market demands.

Cultivators

Cannabis cultivation businesses grow cannabis plants for wholesale distribution to dispensaries, processors and manufacturers, producing flowers, concentrates, clones and seeds. These operations range from small-scale indoor grows to large commercial facilities using advanced cultivation techniques and environmental controls. 

Successful cultivators need expertise in horticulture, plant biology, facility management, and compliance with state regulations regarding security, tracking and quality control. This business requires significant capital investment for facilities, equipment and ongoing operational costs, but offers strong growth potential in the expanding legal cannabis market.

Manufacturers

Cannabis manufacturers create value-added products by processing raw cannabis flower into concentrates, edibles, topicals, tinctures and other infused products for wholesale and retail distribution. These businesses require specialized extraction equipment, commercial kitchen facilities, and expertise in food science, chemistry or pharmaceutical manufacturing. 

Manufacturers must comply with strict health and safety regulations, obtain proper licensing, and maintain precise dosing and quality control standards. This sector appeals to entrepreneurs with backgrounds in food production, chemical engineering or product development who want to create innovative cannabis products for diverse consumer preferences.

Testing laboratories

Cannabis testing laboratories provide essential safety and compliance services by analyzing cannabis products for potency, terpenes, pesticides, heavy metals, microbials and other contaminants to ensure consumer safety and regulatory compliance. These businesses use sophisticated analytical equipment like high-pressure liquid chromatography and mass spectrometry to conduct required testing for cultivators and manufacturers. 

Testing lab operators need backgrounds in analytical chemistry, laboratory science or related fields, along with significant capital for equipment and facility setup. The global cannabis testing market is projected to grow significantly, reaching $11.1 billion by 2034, making this a promising sector for qualified professionals.

Packaging companies

Cannabis packaging businesses design and manufacture specialized containers, labels, and packaging solutions that meet strict regulatory requirements for child-resistance, tamper-evidence, and compliance labeling while helping brands differentiate their products. This industry serves cultivators, manufacturers, and dispensaries with custom packaging for flower, edibles, concentrates, and other cannabis products. 

Entrepreneurs in this space need expertise in packaging design, manufacturing, regulatory compliance, and materials science, with growing emphasis on sustainable and eco-friendly packaging solutions. The cannabis packaging market is expected to reach $12.8 billion by 2035, driven by continued legalization and consumer demand for premium, sustainable packaging.

Ancillary cannabis businesses

Ancillary or “non-plant touching” businesses provide essential support services and products to the cannabis industry without directly handling cannabis products, including legal services, accounting, marketing, security, software development, compliance consulting, insurance, and equipment supply. These businesses often face fewer regulatory barriers and can operate across state lines more easily than plant-touching businesses. 

Entrepreneurs with professional expertise in finance, law, marketing, technology or other business services can leverage their existing skills to serve the rapidly growing cannabis industry. The ancillary sector offers diverse opportunities with lower barriers to entry and is projected to experience major growth as the industry expands.

What to know about launching a cannabis business

Whether you’re starting a dispensary or any other type of cannabis business, you’ll need to understand the unique circumstances facing the industry. This includes its fragmented regulatory frameworks, tax complexities, banking challenges and ongoing legal changes. 

Fragmented regulatory landscape

The cannabis industry remains in a state of flux with varying state frameworks leading to a fragmented industry. Everything from licensing to reporting can be vastly different, making business expansion challenging.

Tax complexity and fewer deductions

Cannabis businesses face unique tax challenges due to IRS Section 280E, which forbids deducting ordinary business expenses for businesses trafficking controlled substances. This means cannabis companies often face much higher effective tax rates than other businesses, paying tax on turnover rather than profitability.

Banking and financing challenges

Many banks and traditional lenders remain reluctant to work with cannabis businesses due to federal illegality concerns. However, relief may be on the horizon with federal bills like the SAFER Banking Act, which aims to ensure banks won’t be penalized for providing services to legal cannabis businesses.

Adam Uzialko contributed to this article.