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How to Start A Dispensary Series Part I: Capex and Equipment Costs

This is part of an ongoing series where we explore detailed costs for starting a dispensary, from the equipment costs you should expect to the financial metrics that go into the income statement.

We base this analysis on information we collect across a variety of business plans and dispensary applications as well as public information. Today, we explore capital expenses necessary for building a vertically integrated dispensary (with cultivation/processing), which will be more costly than having only a dispensary or only providing cultivation. Controlling your supply chain is important because you also control your quality and quantity, and states like California allow for such vertical integration. Leasing a bigger area may also be beneficial given the possibility for expansion. In terms of assumptions, this analysis assumes that the dispensary portion is roughly ~3,000 sq ft and the cultivation and processing area is roughly ~15,000 sq ft for a total of 18,000 sq ft (we have seen spaces ranging from as low as 3,000 sq ft to a monstrous 60,000 sq ft retail/growth/processing area). The estimates below are split out into three sections: A) Permits/Inspections and Business Incorporation: these are all the necessary legal and regulatory legwork you have to do, from getting proper permits/zoning in place as well as properly designing your facilities; B) Capex for Build-Out: includes start up costs related to new construction, renovations, installing security systems, and other space improvements; C) Equipment Costs: everything you need to grow, process and sell your product.

While the following items are estimates, they are based on actual figures coming from business plans and dispensary expenditure information.

A) Permits/Inspections and Business Incorporation

  • Proof of liquid funds in a bank account (varies based on state/application process)
  • Architectural design of cultivation/processing facility ($30k-$60k)
  • Building permit for build-out of facilities ($5k-$10k), mostly zoning and engineering related, and/or environmental survey (~$5k). Will need to survey and measure location perimeter to ensure building lots are beyond minimal clearances to schools/residences based on state laws
  • Public health review of architecture (for medical)
  • Security audit/inspection and design for site grounds, perimeters and facilities ($2k-$5k)
  • Legal incorporation of business ($15k-$50k); includes preparing governing documents, applications, operations manuals, employee handbooks, interfacing with zoning and engineering firms, preparing employment agreements and navigating banking relationships
  • Site clean-up and preparation if using existing facility ($0k-$30k;, this includes removing interior offices/walls, gutting, and preparing space for dispensary/cultivation
  • All in total of ~$65k-$180k. On average these pre-build-out planning associated costs have been in the $100k range (at minimum).

B) Capital Expenditures for Build-Out

  • Build-out of dispensary and cultivation/processing spaces ($150k-$400k). Includes all dispensary, cultivation, processing, vault and storage rooms. The large variation is due to how extensive, and intensive, the build-out will be and whether one is targeting a dispensary operation by itself or a vertically integrated business with growth and processing
  • Space improvements including finishing/painting, kitchen, office space, bathrooms, etc. ($50k-$225k)
  • Additional construction costs including painting and finishes ($50k-$375k)
  • Security system including multiple camera feeds and metal/weapons detectors ($50k-$120k)
  • Parking facility ($10k-$25k), include resurfacing and lighting of patient and staff parking areas
  • Guardhouse/gate facility and/or perimeter boundary fencing, if necessary ($50k-$95k)
  • Also potential upgrade cost the electricity usage requires an increase in the power supply from nearby substation. We have seen a handful of dispensaries budget such a cost and would require working with the local utility and an engineering firm
  • All in built-out cost of ~$360k-$1.1MM; on average, costs have come in around $450k-$775k from what we have seen

C) Equipment Costs

  • Delivery vehicles ($15k-$25k each) or $45k if using SUV
  • Cultivation and processing equipment including grow lights, CO2 generators ($10k each), trimming machine ($15k each), HVAC system (one of the largest equipment costs, ~$80k), control systems, irrigation, pots, nutrients and other supplies (total $120k-$200k). Non-safety upgrades, such as backup power capacity, fans, eye wash and cleaning station, and a reverse osmosis machine
  • Commercial kitchen, ventilation and extractors for processing cannabis or preparing infused products (total $100k-$250k). This includes stove tops/ovens and stainless steel countertops for processing sales and decarboxylation of cannabis flower beds (required pre-processing)
  • Computer equipment/tracking software, including $8k point-of-sale/inventory system with initial hardware for tracking plant, plant to weight, weight to inventory, sale to depleted inventory ratios (total $10k-$20k)
  • Furniture, flooring, safe, other misc. items (total $10k-$85k)
  • All in total of ~$255k-$585k with average equipment costs of around $500k. That said, some companies have chosen to lease this equipment (similar to taking out mortgage to buy a house) so you don’t pay the full amount in the case of buying.

As mentioned, these costs are associated with an 18,000 sq ft dispensary/cultivation and processing center, which is fairly sizable and probably bigger than what most entrepreneurs would want to start out with. And given the rough prices estimates, this might sound like an odd-against venture. But one may also not need the bells and whistles (such as a guardhouse) if one is only retail or plans to operate within a larger, protected space. Still the market is young, and having built out space to expand may end up proving highly beneficial.

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