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How to Calculate Your Initial Cannabis Startup Costs

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September 06, 2018

Before deciding whether or not to invest your time, effort, and money into starting a cannabis business, it may be wise to take a close look at initial start up costs. Unfortunately, cannabis ventures tend to be more capital intensive than other start-ups. Here is a checklist to help you anticipate what your initial start up costs may look like.

Licensing Fees

Cannabis licensing fees vary not only at the state level, but also by municipality.  In California these non-refundable fees are between $1,000-$5,000 per application. The fees will vary depending on the type of license you intend to apply for, as well as your jurisdiction. If you were to include local licensing or permit fees, expect your licensing fees to be between $10,000 and $12,000.

Operating Costs

Operating costs include rent, salaries, security, marketing, interior and equipment. These costs, depending on the type of business you want to start, may include:

  • Rent: this expense is usually charged per square foot. The price per square foot will vary, depending on the location and size of your facility. Rent for cannabis businesses in less populated will be significantly cheaper than in a city where competition for space is high. You should also keep in mind that green-zoned real estate is very limited, and as a result, landlords charge a premium for space every other cannabis venture is willing to compete over.
    • For dispensaries located in a bigger city like Los Angeles, expect rent to be between $7,000 and $9,000 a month.
    • Cultivation facilities that are 25,000 square feet and located in a city that is a moderate distance from a metropolitan area, may charge a monthly rent between $15,000 to $20,000.
    • Manufacturing facilities need less square footage and are usually only permitted to operate in cities far away from dense populations. Therefore, expect monthly rent to be between $3,000 to $5,000.
  • Employees: every cannabis business will need a unique set of employees with specific skill sets that range from individuals that have at least their GED to Bachelor’s degrees and PhDs. That said, salaries will vary across employee roles and positions.
    • Bud Tenders typically make slightly more than minimum wage at $12-$14 per hour.
    • Master Extractors could make between $60,000-$70,000 a year.
    • Dispensary Managers usually make between $50,000 and $60,000 per year.
  • Marketing: every successful cannabis business has good marketing, and many cities require you to outline your branding and marketing plan in a cannabis business license application. Your marketing budget will depend on the size of your business. Smaller businesses could spend at least $2500, while big businesses could spend millions. One thing to keep in mind when you make your marketing budget is that marketing expenses are not tax deductible.
  • Security: every cannabis business is required to have security. Given the amount of cash your business will be dealing with on-site, our experts recommend a combination of security equipment (video cameras, safes) and guards or security staff on-site. Retainers for specialized security agencies range from $20,000 to $30,000.
  • Equipment: each kind of cannabis business requires various types of equipment and interiors. The cost to build out, improve, install, and retrofit depends heavily on the location, the facility type, and your budget.

Consultants

New entrants to the cannabis industry should engage consultants to help put their cannabis business together. For licensing, compliance, company structuring, accounting, security, and cannabis-specific advice, its important to work with partners you can trust. If you’re not sure where to start, make sure you ask these ask these seven questions to a potential cannabis partner.

Insurance

Like any other business, states require cannabis businesses to have insurance. In California, cannabis businesses are required to have commercial general liability insurance coverage for at least $2,000,000. Monthly premiums for this type of insurance range between $1200-$2200.

Outreach

Finally, one last thing that should be included in start up costs that many people overlook is outreach. Most states and localities seek to award licenses to organizations that want to improve the community. Allotting a budget for community programs, local law enforcement programs and endowments, and schools could be the one thing that sets your application apart from the rest.

Emergency Funds

Experts suggest having $300,000 at hand and access to another $200,000 to feasibly start a cannabis company in California.

This checklist is based on estimates. So remember to do your homework when you’ve decided on the type of cannabis business you want to pursue. Each business is unique and the costs will vary. One thing that applies to any business is the fact that it requires a lot of money, time and effort.

For many entrepreneurs, raising that kind of capital can be daunting. Check out our guide on finding an investor for your cannabis business. There are plenty of options out there! Get in touch with the experts at GreenGrowth CPAs for any questions you might have and to get a head start on entering the cannabis market.

Filed Under: Business