Cannabis in the U.S. is a big and booming industry that has so far created numerous job opportunities and injected the U.S. economy. Creating a total of 250,000 jobs since inception. These jobs include cultivators, processors, lab-technicians, as well as dispensary managers amidst a host of others. Some states legalized marijuana for recreational and therapeutic uses while some legalized it for solely therapeutic purposes.
In all states, the licensed way to legally acquire medical marijuana is by purchasing off the counter at licensed dispensaries. This is after the patient has been duly registered with the medical marijuana program of the state and has received the medical cannabis card. For states that have legalized marijuana for recreational use, it is much easier to purchase at a dispensary near you and all that is needed is a valid means of identification. A dispensary is a legalized store or outlet that sells drugs and specifically, in this case, cannabis.
Running a dispensary can be lucrative as the estimate sales expected for 2019 is $7 billion, but this is no guarantee that the business would thrive, to run a successful dispensary a highly experienced and skilled dispensary manager is needed. The aim of this post is to highlight the reasons why dispensaries fail as a business and how the successful ones are scaling new heights.
To successfully own and run a dispensary a couple of boxes need to be ticked as some of this varies from state to state. However, the general includes; no felony charges against the owner, the dispensary location must be 500 – 1000 feet away from schools, church, and restricted locations which also varies across states, a complete business plan, and compliance with all safety regulations. This further highlights that the cannabis industry is no minced meat.
A couple of reasons could be responsible for the failure of a dispensary which include inexperience, lack of regulation compliance, no market, etc. The reason for success wouldn’t be far-fetched as doing the opposite of the previously stated would result in a turnaround. However, let’s take a closer look.
Lack Of Support From Financial Institutions
As it is with most startups, the need to have access to financial loans can be immeasurably impactful. As statistics show that 30% of startups in the cannabis industry would fail, a handy loan could have been the difference-maker. This lack of support is because at the federal level cannabis is seen as a schedule 1 drug and thus, classified as an illegal drug. With no sureties from the federal government, the banks would definitely be skeptical about investing in such an industry.
The traditional financial institutions would also look at the instability in this industry regarding complex laws and regulations and ask themselves if this is an industry they truly want to meddle in. Even beyond loans, the cannabis industry cannot access the financial institution services even to the least which is saving. This inadvertently makes the cannabis industry a cash-only sector, making frugality for some dispensaries hard to achieve especially those managed by the owner and not a dispensary manager.
The cannabis industry is one of the most taxed and it is almost impossible for them to secure tax deductions. The average American company can rely on tax deductions. By liaising with the tax authorities to pay tax after it has paid its employees. Thus, enabling them to pay lesser since the employees would still be charged. This is impossible for dispensaries as cannabis is still an illegal drug.
The dispensaries thus file under a different part of the U.S. state code known as the 280E, and this effectively prevents them from making deductions and thus pay tax on everything that comes in rather than its profit. This is different from the excise tax that the dispensaries have to pay for transportation of cannabis from the cultivation site to the dispensary. This is indeed enough to kill a business.
Expensive Licensing And Costs
The average dispensary has at least two settlements which would cost an average of $15,000 to acquire, this also depends on the state. It is usually not all dependent on money as some states can still deny the application. States like Massachusetts have a specific number of dispensaries that can exist and once an application doesn’t come in time, it could effectively take years to get another shot at it. States like Nevada also requires that before the dispensary starts it has $250,000 in liquid assets.
Irrespective of these disadvantages, some dispensaries are still thriving and making huge sales. Cannabis dispensary companies have resulted in creative ways to stay ahead of the competition by making the most of technology. Companies now use data analytics to develop unique strains for their customers, make cannabis-infused beverages, beautifully designed websites that allow customers to view trending products, earn a loyalty bonus and much more.
Other companies introduce innovative like a review forum for cannabis users over the age of 18 to help boost acceptance and reduce stigma while some go the extra mile to for customer satisfaction by making cannabis-infused ice cream. Having gotten stability by paying all taxes and licenses, complying with regulations, the next best thing is to focus on customer satisfaction as a way of growth.