How to Open a Dispensary in California

Dispensary Laws In California

Medical marijuana has been legal in California since 1996, recreational marijuana since 2016.

Any adult in California can possess up to 1 ounce of cannabis or 8 grams of marijuana concentrate. Registered medical marijuana patients can posses up to 8 ounces of cannabis.

Dispensaries can sell up to 28.5 grams of cannabis and 6 immature plants to each customer per day.

At the state-level, recreational cannabis is taxed at a net effective rate of 35% to 45%, including a 15 percent retail excise tax and a cultivation tax of $9.25 per dry-weight ounce for cannabis flowers and $2.75 per dry-weight ounce for cannabis leaves adjusted for inflation. Medical marijuana does not carry a sales tax.

If you intend to sell marijuana in California, you must obtain a state and municipal license.

Cannabis must only be used or consumed in private and with the property owner’s permission. There is a ban on smoking marijuana in and around public places like schools, markets, churches, etc.

Cannabis must be grown indoors unless local laws permit outdoor cultivation.

License Requirements

To open a dispensary in California, you need a storefront retailer, or type 10, license. Or if you only want to do deliveries, you can opt for a non-storefront retailer, or type 9, license.

You will need a separate license if you want to do any cultivating, manufacturing, distributing, or testing – unless you have less than 10 employees, in which case you can apply for a vertically-integrated microbusiness license.

Keep in mind that in California, getting a dispensary license from the state is usually the easy part. At one point in 2019, 80% of cities in California had banned recreational storefronts. The cities that do allow recreational cannabis dispensaries often only do so for a limited time during designated application windows, and competition for these licenses is often high.

Application and License Fees

Here is a general idea of some additional costs you may have to incur in the form of legal fees when owning a marijuana dispensary in California. 

• Initial license fee: $1,000 (non refundable)
• Annual fee: $4,000 – $72,000 (scales based on revenue)
• Approval fees: $5,000 – $30,000 (scales based on scope and size)
• Permits and assessments: $0 – $30,000 (scales based on scope and size)

The Cannabis Market in California

California is the largest single cannabis market in the world. Arcview Market Research and BDS Analytics estimate sales of up to $3.8 billion in 2020, and they expect the market to surpass $6 billion by 2025.

In comparison, the second largest cannabis market in the US, Colorado, and the entire country of Canada are only expected to bring in about $1.7 billion each, or less than half of California.

This despite the fact that California still has an illicit market that’s nearly double the size of the legal cannabis market, at a total of $8.7 billion in estimated sales.

According to the Cannabiz Media license database, there are around 700 licensed dispensaries in the state, including over 130 in the Los Angeles area.

Obtaining Permits

A seller’s permit and a cannabis tax permit are required from the California Department of Tax and Fee Administration if you intend to sell cannabis or products that contain cannabis. Prior to submitting an application for additional necessary state licenses, you must have the seller’s permit in place.

Who Can Buy Cannabis in California?

Any adult over the age of 21 who possesses a valid form of identification—a driver’s license or passport—can buy marijuana at your dispensary. A medical marijuana card issued by a physician is only valid for those who are at least 18 years old. Additionally, adults who are not US citizens but have a valid government-issued identity can purchase cannabis at your dispensary. 

Cannabis Facts In California

• Moving cannabis across state lines is prohibited, even if you travel to a state where it is legal.
• California became the first state to permit the medical use of cannabis plants after the Cannabis Use Act was passed in 1996.  
• On January 1, 2018, recreational marijuana use became legal in California, while it is still subject to state regulation.
• Regardless of their patient status, anyone over the age of 21 may purchase marijuana from any dispensary with a state license.
• The BCC mandates that any cannabis harvested for use in commercial, medicine, or adult consumption must undergo testing to verify that it meets strict quality and security requirements.

Eligibility Criteria 

In 2024, applicants seeking a dispensary license in California must meet specific eligibility standards to demonstrate their readiness to operate within the state’s regulatory system. Here are the essential requirements: 

1. Age Eligibility – To qualify for a dispensary license in California, applicants must be at least 21 years old. This requirement ensures that the cannabis industry remains exclusive to adults. 
2. Residency Requirement – Although California does not require dispensary owners to be state residents, applicants must possess a thorough understanding of both local and state cannabis regulations. They need to demonstrate their capacity to comply with the state’s extensive legal framework. 
3. Background Verification – A strict background check is required for all applicants, including a review of criminal history, to prevent individuals with certain convictions, particularly those involving controlled substances, from managing dispensaries. The aim is to safeguard the integrity and safety of the cannabis sector. 
4. Business & Compliance Plan – A comprehensive business plan must be submitted by applicants, outlining their operational strategy and ensuring compliance with all relevant local and state regulations. The plan should demonstrate how the business will contribute to the legal cannabis market while adhering to regulatory standards. 
5. Financial Stability Checks – Applicants are often asked to demonstrate financial stability to ensure they have the means to manage a dispensary effectively. This includes presenting documentation of funding sources and financial statements. 
6. Local Jurisdiction Approval – Applicants must not only meet state requirements but also follow local regulations. This includes securing the required approvals from city or county officials where the dispensary will be located. 

Types of Dispensary Licenses 

California offers multiple dispensary license types, each suited to different facets of the cannabis retail sector. Understanding these options is key to selecting the one that aligns with your business goals.

Delivery Only Non-storefront Retailer

This license permits businesses to sell cannabis products exclusively through delivery to customers, with no physical storefront.

Storefront Retailer

A storefront retailer has a physical location where cannabis products are sold. These retailers may also provide delivery services to customers. 

Microbusiness License (Type 12)

The Type 12 license is available to businesses that conduct at least three of the following activities at a single location: 

• Cultivation – Up to 10,000 square feet of cannabis cultivation 
• Manufacturing – Use of non-volatile solvents, mechanical extraction, or infusion techniques 
• Distribution – Including transport-only or distribution services 
• Retail – Operations may be either storefront or non-storefront 

Local Jurisdictions and Regulations 

Local jurisdictions have the authority to shape the cannabis licensing process in California. Each city or county can impose its own regulations and dispensary security plans on cannabis businesses. This means that, in addition to obtaining a state license, you must meet local requirements to operate legally. 

Local Approval 

• To apply for a state cannabis license, you must first obtain approval from the local jurisdiction where your dispensary will operate. This usually requires submitting an application to local authorities and fulfilling their specific conditions. 

• In addition to state requirements, local jurisdictions may impose additional criteria, such as zoning restrictions, community impact assessments, and public hearings. These are intended to ensure that cannabis businesses do not adversely affect the local community. 

How to Open a Dispensary in California

Step 1: Establishing Your Business 

The California Secretary of State website has a helpful guide on how to start and register your business in the state. You can choose to register as one of these types of businesses:

• Corporation
• Limited Liability Company
• Limited Partnership
• General Partnership
• Limited Liability Partnership
• Sole Proprietorship

One good thing about opening a cannabis business in California is that, since medical marijuana has been legal for so long and the state has always had a robust illegal cannabis market, it’s easier to find people experienced in cannabis to help you start your business than it is in other states.

Step 2: Plan

California requires you to submit a few planning documents as part of the application process, including:

• A detailed diagram of your store
• List of investments and loans
• Procedures for:
  • Transportation
  • Inventory
  • Quality control
  • Security
  • Delivery

Your city will probably require additional materials, too, since they’re going to want to compare you to other applicants. You’ll want to submit a business plan that emphasizes your past experience, funding, preparedness, understanding of the industry, and social consciousness.

Put these plans together now, early. They’ll help guide your decision making and build confidence with potential investors. Cannabis business plan templates and custom business plan writers can assist.

Step 3: Get Funding

Speaking of investors and funding, you’re probably going to need a lot of funding to open a store in California, where everything from goods and labor to real estate is expensive. Plus, you’re competing with an especially strong black market, one that will undercut you on price and that many people are already comfortable buying from, and that isn’t really a high priority for local law enforcement.

On the positive side, there are a lot of rich people in California. Maybe you know some of them; you can get funding from them or a local investment firm. They may be more likely to invest since cannabis is viewed as a new and exciting industry with lots of potential.

There’s also limited ethical opposition to cannabis in California, though based on the data is seems that many only support legalization as long as the dispensaries are in someone else’s neighborhood.

Also, California even offers state-based funding for the industry, including a recently-announced $30 million grant program.

Step 4: Find a Home

Real estate in California is already expensive, at least in many prime urban and suburban areas. The fact that retail cannabis is only allowed in 20% of cities figures to drive up your costs even more. So be sure to put a lot of thought into where you locate your dispensary.

Make sure your dispensary is the required 600 feet away from a place of worship or a school. 

You’ll also have to submit an environmental impact analysis if you’re doing any cultivation or chemical processing at your location.

Step 5: Get Your Licenses

As mentioned above, for most businesses getting the local city license will be the key. These licenses are more difficult to get than the state ones and tend to only be available from time to time, at least in competitive areas like Los Angeles, Orange County, and San Francisco.

In filling out your application for a city license, follow the directions carefully and focus on the points that weigh most heavily on the city’s scoring system if they have one – usually prior experience, funding, local hiring plans, connections to the community, and/or status as a veteran, woman, or person of color.

Here’s an example of the application page for the city of Santa Ana, CA. Search for information on the process in your city of choice.

You can apply for a license with the state here.

In addition to your cannabis license, you’ll also need a seller’s permit from the California Department of Tax and Fee Administration.

Step 6: Set Everything Up

Ok, you’ve got your real estate and you’re good to go on licenses. Nice. Now it’s time to get everything set up. That includes:

• Hiring smart, energetic people that know cannabis or are willing to learn
• Designing and setting up the aesthetics of your store – including furniture, paint, signs, art, and display cases
• Planning and initiating operations, including employee scheduling, hiring and onboarding procedures, developing employee manuals, etc.
• Designing and implementing your tech, including your POS, TV menus, surveillance system, and back office network
• Buying and setting up company delivery cars, if needed
• Working out deals with manufacturers and distributors to sell their products

This is a lot of work for one person to handle, so don’t try to do it all yourself. Surround yourself with a team you trust and find partners and vendors you can work with to lighten the load and focus your efforts on the aspects of your business that matter the most.

Step 7: Launch!

Now that you’re ready to launch, it’s time to get the word out. California has relatively lenient marketing and advertising rules for cannabis.

Some restrictions:

You have to make sure that at least 71.6 percent of your advertising audience is over the age of 21, and you can’t depict any minors in your ads or use any iconography such as cartoon characters that might appeal to children.

You also can’t do any free giveaways including BOGOs and contests, and can’t put any billboards within 15 miles of the state border on an Interstate Highway.

Also make sure that you receive confirmation that someone is over the age of 21 if you market to them directly. You’ll see an example of this whenever you try to access a dispensary’s website.

How Cure8 Can Help

Cure8 helps cannabis dispensary owners in California manage the dual challenges of security and compliance by offering fully integrated IT solutions. We assist dispensaries with IT services management and cannabis security for seamless transactions, ensuring full compliance with state regulations.

Cure8 also provides dispensary security solutions in California, such as 24/7 surveillance, alarm systems, and access control, to protect products and financial assets. Additionally, Cure8 helps design comprehensive cannabis security plans that include compliance, safeguarding the dispensary from potential risks while ensuring full regulatory compliance.