Opening a Dispensary: The Right Loans, and Why You Want Them

November 4, 2022

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The cannabis industry is on the rise. New states are legalizing the recreational use of marijuana nearly every year in the last decade and even in the states where it’s been legal since 2012, like Washington, the industry has been growing year over year. In fact, Statista projects that by 2025, the recreational cannabis business will generate over $25 billion.

But the complicated legalities of the marijuana business can leave business owners with very limited financing options. The U.S. Federal government still classifies cannabis as a Schedule 1 controlled substance, on the same level as heroin and LSD. For that reason, many traditional banks refuse to lend money to small businesses in the cannabis industry. However, it’s possible for cannabis entrepreneurs to find lenders willing to work within the growing industry.

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The states where you can legally open a cannabis dispensary will depend on your intentions. In broad strokes, there are three situations a state can be in: they can allow adults to purchase and use cannabis recreationally, they can allow for medically-cleared patients to use cannabis therapeutically, or they can choose not to offer cannabis use whatsoever.

According to the National Conference of State Legislatures, the following states allow for adult consumption of recreational cannabis: Washington, Colorado, Oregon, Alaska, Nevada, Washington DC, Massachusetts, Maine, California, Michigan, Illinois, Vermont, New Jersey, Montana, Arizona, Virginia, New York, New Mexico, and Connecticut.

Another group of states allows for only the use of medical cannabis: Hawaii, Rhode Island, Delaware, New Hampshire, Maryland, Minnesota, Louisiana, Georgia, Pennsylvania, Ohio, North Dakota, Florida, Arkansas, West Virginia, Iowa, Utah, Oklahoma, Missouri, South Dakota, Alabama, and Mississippi.

That leaves only Idaho, Wyoming, Kansas, South Carolina, North Carolina, Texas, Iowa, Wisconsin, Indiana, Kentucky, and Tennessee with no forms of legal cannabis.

Why Do Dispensaries Require Loans?

Opening a cannabis dispensary isn’t like opening a pizzeria. There are a number of costly considerations you’ll need to make and hoops you’ll need to jump through. The following list is by no means exhaustive but should give an idea of why many sources estimate that opening a marijuana dispensary can cost as much as $2 million.

  • Licensing. First and foremost, there’s a lengthy application process required to receive the proper licenses to open a dispensary. Because cannabis is still illegal at the federal level, the price, requirements, and restrictions of dispensary licensing vary by state. In California, for example, the price of retail licensing starts at almost $4,000 and rises as your annual revenue rises. The largest distributors in California pay nearly $100,000 for their annual licensing.

  • Real Estate. Next, you’ll need to have a space for your dispensary business, and that means dealing with a host of complications on top of the real estate difficulties that come with any business. Many states have firm regulations on where a dispensary can be located. They won’t want a cannabis distributor too near a school, for example. So navigating those rules while also finding a location with the proper visibility and foot traffic can lead to a limited supply of real estate, and limited supply means higher pricing.

  • Staff. You’re not in it alone. In addition to budtenders (the front-of-house employees directly selling products to customers), you’ll also need to hire compliance professionals, security experts, a marketing team, inventory experts, and more.

  • Inventory. As with any retail business, you’re going to need a large amount of inventory to start operations. That amount of inventory in the cannabis industry can cost thousands of dollars.

  • Security. Many states have dedicated security sections of their cannabis distribution laws. In Colorado, for example, state laws dictate the thickness of the fence required to protect growing facilities along with resolution standards and timing requirements for 24-hour video surveillance of retail locations. Some states restrict the number of entrances to facilities as well. So on top of paying extra for scarce real estate, your building must also be outfitted according to the law as well.

  • Marketing. It’s not unusual for business funding to be used for marketing, and with the crowded cannabis dispensary marketplace, it might make sense to allot a good amount of capital for getting the word out there about your company. What makes your dispensary a better option than related businesses in the area? Are you in a more convenient location? Offering particular niche products? Why should a prospective customer come to you instead of a different company? Make sure to get the word out about your answers.

  • Working Capital. And after you buy and hire and market your startup dispensary, you also need some amount of working capital. Working capital is the cash you use to fund the day-to-day operations and expenses of your company. Working capital is important because having financial wiggle room is what allows your company to maneuver. You may find that your company has an opportunity to take advantage of an inventory discount, or that a utility bill is above average. Sufficient working capital allows you to make payments or purchases to save cash. And if your company experiences a seasonal or unexpected downturn, sufficient working capital ensures that the lights stay on and business can continue as normal.

Who Offers Cannabis Business Loans?

Now that you know how much capital is required to start up a cannabis company, you may be wondering where you’re going to acquire the money. As noted earlier, traditional financial institutions are leery of risk, and lending significant money to a business selling a substance illegal at the federal level qualifies as risky (despite the noted growth of the industry).

In the wake of that red tape, many cannabis-specific lenders have popped up not only willing to work with marijuana distributors, but actively looking to do so:

  • AVANA Capital offers real estate, construction, and bridge loans to cannabis companies.

  • Bespoke Financial offers several types of financing to cannabis businesses: lines of credit, inventory financing, and more.

  • Abaca is a financial platform available for CBD and cannabis businesses in Ohio. You’re able to access not only construction loans and lines of credit, but also bank accounts and other financial services not always available to entrepreneurs in the marijuana industry.

  • GoKapital offers business loans of up to $5 million to businesses in the industry. While they do require some time in business, if you’re looking to expand an existing cannabusiness firm, GoKapital can be a good option.

In addition to these, the U.S. Treasury reports that there were 755 financial institutions working with cannabis businesses as of September 2021.

What Types of Loans Are Available for Dispensaries?

Depending on the lender you work with, there are any number of types of business loans available for cannabis companies.

Term Loans

Term loans encompass many of the different types of loans you can get from most alternative lenders, credit unions, and traditional banks. Borrowers complete an application process and depending on the borrower’s credit score and other markers of creditworthiness, the lender can extend a funding offer and commensurate interest rate. If the loan offer is accepted, borrowers then make monthly payments to pay off the loan.

Short-Term Loans

Short-term loans have repayment terms shorter than 18 months. With such little time to accrue interest, lenders often offer short-term loans with higher interest rates than long-term loans, and they Because of the brief repayment periods, short-term loans are typically for smaller amounts than other loans and come with higher interest rates.

Long-Term Loans

Long-term loans take multiple years to repay, and are often for large amounts at lower interest rates than short-term loans. Because of the long repayment terms and low interest, these long-term loans are often used for as real estate loans or general startup loans.

Because the lender is taking a substantial risk in lending such a significant amount of money, they take great care in making sure that the borrower is likely to repay the loan. They’ll want to see your credit history, business plan, and financial statements all along with every document required to show your licensing.

Equipment Financing

Equipment loans are used for purchasing, leasing, renting, upgrading, or renovating equipment. The borrower makes a down payment on the equipment in question and then receives the rest of the cost of the equipment as a loan. Equipment loans can be hugely beneficial to recreational marijuana retailers because of how much equipment is involved in the business. Your storage and security equipment all qualify, as do office equipment, furniture, and more.

To keep interest rates, low, the lender holds the new equipment as collateral so that if the borrower can’t make payments, lenders will take the equipment and sell it. That protects them from losing too much money in the face of default.

Lines of Credit

Business lines of credit don’t work like other loans, as they aren’t comprised of a lump sum loan. Instead, a business line of credit comes with an agreed-upon credit limit, and the business owner can withdraw money under the limit. Like other loans, lines of credit are very flexible – you can use this cash as working capital, wages, or to purchase expensive inventory.

The big benefit of lines of credit is that, like with credit cards, borrowers only make payments (and pay interest) only on the money borrowed under the credit limit. Some businesses choose to use that line of credit as a sort of rainy day option. If a piece of equipment breaks, it can take days or weeks to receive funding through an equipment loan. On the other hand, a line of credit is available for use immediately. And as you pay down the money you’ve borrowed, you can re-borrow back up to the limit. This is known as revolving credit.


In addition to debt-based financing, you could attempt to crowdfund the money necessary to fund your business needs. However, similar to working with financial institutions, the usual crowdfunding sites and services have terms and conditions that won’t allow them to raise money for businesses selling controlled substances.

There are a few crowdfunding services created specifically for cannabis companies. Mainvest, for example, allows for crowdfunding in exchange for dividends. Elsewhere, Fundanna also functions to help entrepreneurs raise money to build, buy, or market their companies.

Venture Capital

Finally, you might choose to seek out venture capital for your company. Venture capitalists are noticing the growth in the cannabis industry and are always looking for companies in need of cash. There are resources like New Cannabis Ventures that work to connect investors with those seeking capital in the recreational and medical marijuana industries, and if you’re willing to cede some degree of control of your company in exchange for capital, venture capital could be a strong choice.

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