The Complexities of Owning a Dispensary in Arizona

It’s not just about pretty flower

If you live in Arizona, there’s probably a medical cannabis dispensary in your hometown. In 2010, Arizona voters legalized medical cannabis. The law ushered in a new era of alternative medicine, holistic health, and wellness in the southwestern state. As we enter 2018, there are now several dispensaries across Arizona. The number of dispensaries relies on how many pharmacies are open: one cannabis dispensary for every 10 conventional pharmacies. The cannabis program brought in $340 million in revenue in 2016. Of course, that number has grown in 2017 and the beginning of 2018.

Running a dispensary is hard work. Anyone who thinks it is just about admiring beautiful flower (while we do enjoy doing that), is mistaken. A dispensary comes with all the complications of running any other business: making sure there is enough product to meet demand, ensuring both employees and customers are happy — you get it and the list goes on! Cannabis’ illegality and social stigma make matters even more complicated.

Each state has its own set of cannabis laws and Arizona is no exception. Arizona is actually one of the hardest states to open a dispensary. Here, we’ll explore some of the complexities that come along with opening a dispensary in the Grand Canyon State.

Money, money, money

You guessed it! One of the most complicated and prohibitive aspects of opening a dispensary is finances. From the get-go, individuals must prove their financial ability. One, there is a recurrent $5000 application fee to the Arizona Department of Health Services to maintain the dispensary license. Furthermore, the prospective dispensary owner must meet capital requirements, meaning he/she must have $150,000 in startup capital. Build out of the dispensary and possibly a grow facility can be upwards of $250,000 (if not more).

These steep numbers don’t include the maintenance and supply costs. Marijuana Business News estimates operational costs anywhere between $43,900 and $135,700, for a small 1000-square foot store with two employees. Of course, this number goes up when growing your own flower.

Paying Up to Uncle Sam

Even though cannabis is still federally illegal, dispensaries still must pay taxes to the IRS. How does this work? A unique clause in the tax code called Section 280E. This clause allows technically illegal industries to still pay taxes. To be clear: businesses should want to pay taxes. Maintaining a good relationship with the IRS helps to legitimize business and creates fewer complications down the road. Even so, Section 280E creates a headache for many dispensary owners and others in the industry. The clause applies to anyone involved in cannabis, ranging from the small-scale grower and edibles maker to the largest dispensaries in the country. Interestingly, the clause even allowed Al Capone to be charged with tax evasion — even though most of his income was illegal.

Now, most businesses are able to lessen the tax burden by “claiming” various expenses, such as paying employees, maintenance costs, travel, etc. However, with USC 280E, “illegal” operations cannot deduct these same costs. In the eyes of the IRS, cannabis dispensaries are as good as a Prohibition-Era speakeasy despite more than half of the nation having some form of legal cannabis.

Essentially, the government has a pretty nice set up by not declassifying cannabis. They don’t have to go through the work and trouble of legalization, and they still make a lot of money from taxes.


Still convinced?

For some further reading about how to open a dispensary, we recommend checking out this page at the Arizona Department of Health Services.

The demand for cannabis has only grown in the last few years, meaning there will have to be more people to sell it! Despite the challenges, owning a dispensary is wonderfully rewarding and exciting. Owners have a once-in-a-lifetime opportunity to work with some of the most ambitious, creative people. They get to work in one of the most dynamic and interesting industries. Best of all, they can create a space where people feel welcomed and safe.

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