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How to Calculate Your Cannabis Startup Costs

How to Calculate Your Cannabis Startup Costs

Launching a business can mean a fair amount of uncertainty and risk. How many customers can you expect to walk through the door? How can you get a leg up against competitors? Where should you devote your precious capital as the company begins to grow? In the cannabis business, many of these questions about risk are augmented by the product's natural uncertainty, given that it remains federally illegal and that a myriad of state and local regulations will affect business processes.

The state of California recommends that a cannabis business get at least half a million dollars in capital to cover start up expenses, a much bigger sum of money than most other businesses. Luckily, the prospect of launching a startup means that you can effectively calculate the costs associated with getting the business off of the ground, reducing uncertainty and allowing you to better allocate assets.

Identify Expenses

Money in is not always straightforward for a business, but money out typically is. Expenses are usually predictableperson typing on calculator with receipts on the table and consistent, and even with variation from week to week or month to month, you can calculate the estimated payments you will make on everything from rents to salaries to marketing.

Start with what will probably be the biggest overhead cost: the property itself. Unless you plan to run a cannabis business from your basement, you'll need a retail office with enough space for a sale floor, inventory storage, and office functions. This cost is the easiest to calculate because it won't change: you lock in a rent or a business mortgage, and the price is set. 

Rent is most often calculated per square foot. In a big city, rent may be as much as $10,000 per month. Rural dispensaries will have lower rent costs, but also a smaller customer base. The cost of utilities should be included in expenses, but separately from rents, given that they are more variable and will change with less predictability. Don't be afraid to invest in real estate, however. Obtaining a loan is easier than you think for cannabis businesses. 

After that, focus on small tasks like office supplies: everything from pens to printers to cash registers will be a necessity, with enough for all employees to use each day without running the risk of shortages. Remember also that you will need security for this property, since a single robbery or act of vandalism can set your business back dramatically; average costs are around $20,000 to $30,000 per year.

Employee Salaries

Generally, the next-highest budget item will be salaries for your employees. Salaries are quite variable: a "budtender" responsible for serving as the point of sale for customers may make only ten to fifteen dollars per hour, given that they require no formal education or training. By contrast, an extractor who understands the biology and chemistry of cannabis will demand a higher salary, anywhere from $50,000 to $100,000 per year. 

While it is never recommended choosing lower-performing employees for lower salaries, no business has endless pockets, and you may need to make compromises on your hiring decisions based upon the expected salary demands of your employees.

person holding up a sign that says licensing Licensing Fees

Any business will have to pay fees to get their operations up and running, such as a business license. However, cannabis business fees can be much more complicated, and much more expensive, than in other industries. Some states have a one-time licensing fee that can run from several thousand dollars to over $20,000, while others require consistent renewal of licensure or permits. 

Since the costs of these licensing fees are so high, money needs to be earmarked well ahead of time to cover all the mandatory fees—the financial penalties can be extremely severe if this licensing is not followed precisely, and an entire business may be shut down for errors or inaccuracies.

Third Party Support

No business thrives by itself. A dedicated team of support professionals, from accountants to bookkeepers to marketers, will help a cannabis business to succeed in the early days. These services are not cheap, however, especially if you need to hire specialists in their fields who specifically deal with cannabis policy or business. You want to trust these professionals with your money, your business, and your time, so it is crucial to form strong links before you open your doors to the public.

Need Funding To Cover Your Costs? 

When it comes to all things funding for your cannabis business, Canna Business Financing can help you acquire the capital you need to start or grow your business. Calculating costs can be tricky, but with proper funding, it doesn't need to be stressful. You can even get pre-approved within 48 hours. 



Posted by Canna Business Team


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In an industry that is constantly evolving, Canna Business Financing provides business owners with a reliable source to gather the most up-to-date information. From resources to fund the growth of your business to insights on best practices to scale, look no further!

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