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The Risks Of Opening A Medical Marijuana Dispensary

Zach Reichard March 25, 2013
The Risks Of Opening A Medical Marijuana Dispensary

As an aspiring entrepreneur looking to start a new business within the medical marijuana industry, it’s very easy adopting a glamorized and carefree outlook of the potential results.

There are indeed many people that have made a decent amount of money from the industry; be it through dispensaries, selling marijuana infused products, merchandising, etc. However it would be foolish to think that a marijuana-related business cannot fail; the general rules of business still apply. There are a vast amount of challenges that one faces beginning with the application process, and even if you end up being so lucky as to break-even there’s no guarantee things will stay that way. In this article we’ll discuss some of the pertinent risks of entering the dispensary business as discussed at The National Cannabis Industry Association’s Cannabusiness Symposium last weekend in Boston, MA.

Federal Law Still Trumps State Medical Marijuana Laws

Marijuana in any form is still illegal at the federal level. Despite being behind the times (as 18 states plus the District of Columbia now have legalized medical marijuana), the law cannot be understated. The federal government trumps state and local governments, so anyone looking to start a business in this industry must accept from day one that their business will be viewed as an illegal operation by groups such as the DEA. These people view this medicinal plant as their #1 enemy, and would love nothing more than chopping down a garden and taking away safe access to medical marijuana for sick and dying patients. They love it.

However, this does not mean your dispensary is absolutely going to be raided and you’ll lose everything. Medical marijuana proponents, such as The National Cannabis Industry Association (NCIA) co-founder Aaron Smith, have gained confidence of late that the Obama administration has loosened its harsh grip regarding crackdowns on medical marijuana dispensaries. At the NCIA Cannabusiness Symposium, Smith stated that the attitude of the federal government has been shifting since 2011 from “outright fighting,” to “silent opposition,” which he views as a promising improvement.

As The Saying Goes: It Takes Money To Make Money

Starting a medical marijuana business is very expensive. Whether you want to start a full-blown dispensary, or you’re trying to start a small edibles company out of your own kitchen, the business will be a costly investment. Chris Walsh, journalist and editor for Medical Marijuana Business Daily, cited The Marijuana Business Factbook which states that an investor’s personal savings typically foot about 83% of the costs associated with starting a dispensary.

“The Marijuana Business Factbook states that an investor’s personal savings typically foot about 83% of the costs associated with starting a dispensary.”

Typically, funding must come out of pocket because no banks will give loans to entrepreneurs attempting to start a business within the medical marijuana industry. Certainly no federal bank will loan money to an endeavor that the federal government deems illicit.

Another important wrinkle to the financial planning of your potential medical marijuana business can be found within the US tax code. A certain section of the tax code, which has become notoriously known as “280e,” was enacted by the Reagan administration to stop drug trafficking through business. However the code was not written up when medical marijuana businesses were in existence. Legitimate business owners are now finding they cannot file tax deductions for their dispensaries due to the fine print of this code, leaving them with undeservedly expensive bills.

The Only Certainty Is That Nothing Is Certain

While the overall feel at the Northeastern Cannabusines Symposium in Boston was majorly positive and hopeful, speakers were careful to stress one theme above all: this industry is not for the faint of heart, it’s no place for big ego’s, and the only thing that is certain is uncertainty.

According to the research conducted in the aforementioned Marijuana Business Factbook, fifty-six percent of businesses within the medical marijuana industry take between 6 months and 2 years to become profitable after making medium to large sized investments. Even smaller investments take months to break even, so anyone who thinks a medical marijuana business will be immediately profitable is probably in for a nasty shot of reality.

“Fifty-six percent of businesses within the medical marijuana industry take between 6 months and 2 years to become profitable after making medium to large sized investments.”

Aside from constantly changing laws and other external factors, there is plenty an owner can do to put a damper on their own business. To quote Genifer Murray, president of a medical marijuana testing facility called CannLabs, “[g]rowing is really hard.” This is not something to be overlooked if you hope to open a dispensary, especially since many state laws require you to grow 70% of the cannabis you sell at your establishment. Outside of legislative questions such as how much or where you can grow, anyone interested in growing their own cannabis should be aware of all the variables that could possibly compromise their efforts.

Such problems include excessive heat or humidity, insects or bacteria bent on eating your crop, improper soil chemistry, over-fertilization, improper lighting…the list goes on and on. If a grow goes badly then it’s your time and your money you will be spending to get it right. Not to mention, you could grow the most perfect plants known to man, and could have them chopped down in the blink of an eye by the feds; regardless of whether you are growing legally or not.

This industry is anything but forgiving and anyone willing to put their neck out for the sake of doing business must be aware of the risks they assume by doing so. For this reason, we truly appreciate anyone working in the industry for the sake of suffering patients everywhere.

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