Article Author: Sara Gullickson, CEO and Founder
Arizona is a robust marijuana market that saw more demand than other states in its first year of legalization. The Arizona Department of Revenue projected $1.2B in cannabis sales for 2021, and sales actually reached $1.9B. As a limited market, Arizona licenses are scarce and therefore valuable.
License holders who secure cannabis dispensary licenses often benefit from a healthy profit margin with most operations 75% profitable in the first year of opening. However, in order to ensure success, the operation needs to have a strong foundation even prior to launch.
In Arizona, 26 social equity licenses have already been issued. The next step for winners is to launch their dispensary operation on schedule, with a timeline set for 18 months from April 8, 2022.
A dispensary operator needs to ensure their facility has the resources in place to pass inspections and run compliantly under state and laws and regulations. Here are some of the key things license holders should prioritize in order to actualize their dispensary operation and adequately prepare for site inspections.
1. Understand State Regulations
Though new license holders may be familiar with state regulations from the application process it is important to research local rules at the city level. Municipalities and townships can issue their own restrictive cannabis zoning and operational laws. There may also be nuances related to how cannabis is taxed. Understanding regulatory rules and cannabis compliance is crucial to passing inspections and receiving Approval to Operate (ATO).
2. Establish Corporate Structure
One of the first tasks is legally establishing the dispensary operation. In some states, marijuana dispensaries must incorporate as a non-profit. Other types of corporate structures include: sole proprietorship, corporation, partnership, limited liability company (LLC), association or cooperative, and joint venture. Once the cannabis dispensary operation is incorporated, business owners need to register with both state and federal tax authorities.
3. Create a Financial Pro-Forma & Raise Capital
Starting a dispensary retail operation usually requires $1.5 to $3 million in capital. Because cannabis businesses cannot get traditional business loans, many operations are self-funded or look to investors to raise capital. In order to secure funds, license holders will need to create a financial pro-forma and pitch deck to show the long term viability of their business.
Here are key items that should be built into dispensary financials:
● Research and development of assets
● Recurring and non-recurring events
● Effects of tax rate changes
● Planned or possible disposals of business segments
● Vendor or customer relationships
● Technology
4. Design the Dispensary Brand Though it may seem less of a priority, establishing the dispensary brand is not only important for attracting customers and patients, it can also help secure investment. Think about how the dispensary will exist within the community and what it will be known for, what visual imagery is tied to the retail business and how does the environment impact the customer experience? Also, the brand voice should be established and remain consistent throughout all company channels, such as the website, social platforms, and marketing materials. Once again, it is necessary to fully understand state regulations since some laws prohibit design elements that include cannabis leaves, look like a state insignia or could appeal to children.
5. Secure Real Estate and Establish Interior Design During the licensing process, most applicants will need to show proof of ownership or a lease agreement for a qualified property. If real estate isn’t secured, this will be one of the most important tasks as a license holder and often the most difficult. Cannabis real estate qualifications differ from state to state and are dependent upon local zoning laws. Consider hiring someone who is experienced in cannabis commercial real estate and understands the local market. The dispensary business should have easy accessibility, adequate parking, and street visibility. In some states, dispensaries shall not be located within 500 feet of prohibited facilities that include: schools, churches, public libraries, public playgrounds, public parks, and opioid treatment programs.
6. Select Vendors & Team A strong team will create the foundation for a successful dispensary business. Ensure selected vendor partners share the same brand values and meet the needs of the dispensary’s consumer and/or patient base. Additional contractors to consider are industry consultants who can help build out operational plans, policies, and procedures, as well as a marketing manager and brand ambassadors.
7. Execute Upon Operational Tasks
After solidifying real estate, financial plans, and corporate structure, it’s time to build out the operation. This means working with interior designers, general contractors, and industry experts who understand the market. A professionally designed and installed security system is often a requirement and is a necessity of a well-equipped dispensary. In both medical and adult-use markets, dispensaries are often required to store inventory in a vault. Other operational must-haves will include ERP software, such as retail POS, and seed to sale systems. There are a variety of cannabis tech platforms on the market that offer solutions for diverse business needs.
8. Draft Standard Operating Procedures Standard Operating Procedures
(SOPs) are used in all industries and are essential documents to ensure a company delivers its products and services efficiently and in a profitable way. They also provide consistency, reduce errors, and improve communication. Cannabis companies without comprehensive SOPs may suffer from compliance oversight and violations.
9. Secure Product for Your Dispensary
Obtaining a strong product selection for the marijuana dispensary is central to success. New license holders that may already have cultivation and processing licenses will have the ability to sell their own products as well as other brands. Once again, it is important to understand state regulations and what legal forms of cannabis are allowed for sale. Dispensary owners should reach out to wholesale providers to evaluate products and ensure their inventory meets the needs and demands of their patient and consumer population.
10. Plan a Grand Opening Party
Grand opening celebrations are a great way in any industry to boost retail traffic and build brand awareness. Depending on the state of operation, there may be limits on marketing and advertising for dispensaries. Some programs require that the name and license number of the cannabis retail establishment must be visible in all ads.
Here are some activations to consider when promoting a new cannabis dispensary with a grand opening event:
● Branded swag giveaways
● Promotional product deals
● Educational workshops
● On-site vendor demonstrations
● Fundraiser or community partnership
● Loyalty program incentives
Marketing will also come into play with the grand opening and in the long term. WeedMaps and Leafly are online platforms that allow patients and consumers to find dispensaries in their area and see what products are available. Setting up your dispensary website, social media accounts, and google business page will also help to market your dispensary.
What to Expect After Opening a Dispensary License holders who receive approval to operate will be able to open their doors to customers. Before officially opening a dispensary operation, it is recommended to have an exit strategy. Having a plan and strategy for the future is a good business practice, in cannabis and in every other industry. Depending on the state market, an awarded dispensary license can be worth between $3-6 million, with some operations making that same amount annually. In Arizona, new licenses are estimated to be worth between $8-10 million.
The social equity licenses issued in Arizona this year may be one of the last opportunities for eligible individuals to join the state cannabis market as license- holders. However, despite being a limited license program, there are a variety of investment opportunities in the Arizona marijuana industry including joint venture partnerships, franchising opportunities, real estate, and capital investment.
CB Advisors is offering strategic business guidance for Arizona license holders and investors throughout all stages of growth.To learn more contact [email protected].