Operating a Medical Cannabis Dispensary Isn’t Easy – Here’s Why

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I vividly remember the business environment in my state in the months leading up to the voter proposition that legalized medical cannabis here. Entrepreneurs were coming out of the woodwork, drooling over the possibility of making a quick fortune by getting in on the ground floor. It did not work out that way for most of them. It never does.

Operating a medical cannabis dispensary looks pretty easy on paper. But in practice, it’s actually quite hard. It is like operating any other kind of business. There are things that need to be accounted for. There are bills to pay and rules to follow. Not everyone who opens a new business is still in business a year later. That is just the reality.

Licensing Is a Big Hurdle

The biggest hurdle faced by dispensary owners needs to be dealt with before a business ever opens. That hurdle is licensing. Every state with an active medical cannabis program requires operators to hold licenses. It is true of growers, processors, testers, and retailers.

In some states, like Utah, the number of licenses issued to pharmacies is very small. Beehive Farmacy operates retail locations in Brigham City and Salt Lake City. The company holds two of just fifteen total licenses allowed by state law.

Market Forces Are Real

A second big hurdle is found in natural market forces. Utah’s medical-only market is comparatively small and stable. By limiting licenses, the state makes it possible for pharmacy operators to compete without a significant risk of going out of business. Things are different in Oklahoma. In the Sooner State, thousands of licenses have been issued. The market is so saturated that prices have plunged, and dispensaries have been forced out of business.

Out in California, you have a different kind of market force at work: a black market that is bigger and far more efficient than the legal market. Black market operators don’t pay taxes or licensing fees. They do not pay to have their products tested. They can undercut legal sellers by a lot, which is exactly what they have been doing for years.

Finding and Keeping Space Isn’t Easy

If licensing and market forces were not enough, medical cannabis pharmacy owners have yet another challenge in finding and keeping space. Landlords are not necessarily willing to rent to pharmacy owners. They don’t want the liability of cannabis being sold on their properties. It is a common problem.

In Philadelphia, one of the most popular dispensaries in the heart of the city is planning to close three days from the date this post is being written. Why? Because the property owner sold the building to a company that will not allow the dispensary to continue operating. If the owner cannot find suitable space elsewhere, he will simply go out of business.

Don’t Forget Taxes and Regulations

The nail in the coffin for so many unsuccessful dispensary operators is the legal combination of regulation and taxes. Regulation stifles competition and adds to the cost of doing business. Meanwhile, taxes artificially inflate prices. Heap on the regulation and taxation and you are guaranteed to run medical cannabis pharmacies out of your state.

Incidentally, that’s why California’s black market dwarfs the legal market. Taxation and regulation are killing legal operators but having no effect on their black market counterparts.

It is possible to make good money operating a medical cannabis pharmacy. But doing so is not easy. Running a business is hard, even in an industry as lucrative as cannabis. You have to do things in a certain way to make it. If you don’t, your chances of success go way down.

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