Have you ever wondered what was the actual cost to get a cannabis license?
Look No Further
How much does it actually cost to start a cannabis business?
We hope our experiences can help people take knowledgeable steps so they aren’t wasting their own, investors, or other people’s resources and time. We intend this to be a mini walk through of how much it costs to start a small facility 3000 square foot manufacturing facility in California. However, most of this is easily swappable/transmutable to all other legal/quasi-legal cannabis states. So, let’s get started.
The Average Cost to Open a Cannabis Business is $750,000+
This amount is a combination of a LOT of steps which no one says anything about, mostly because everyone is trying to get ahead of everyone else, attorneys have an overwhelmingly new area to learn and navigate through so they charge a ton, and everyone puts a premium on “cannabis” because well – it’s the future holy money-making grail.
First Step – Property Identification
First and foremost is identifying property. Cannabis is vastly different from any other industry in the world. This is because unlike alcohol, pharmaceuticals, cigarettes, or just purely illegal drugs – cannabis is a quasi-legal product which is not legal under federal law.
Green Zone Properties
In California, the cities and states have all the power in deciding zoning for cannabis properties. Commonly known as “Green Zone” properties, these properties automatically 2x to 5x in value if they are in the legal “Green Zone” for a city. So your first hurdle is making sure that the property you selected is even the Green Zone.
A cannabis consultant could charge anywhere between $1,000 to $10,000 or even equity depending on the length of time to go look for properties, check their zoning, then verify its location with the city. For us, it took us 16 cities and 43 different properties before we found one. Let’s just average it at $5,000 which is relatively cheap.
Let’s average the cost for purchase at $300.00/Sqft and leasing at $3.00/Sqft. With a 3000 sqft facility, we’re looking at $900,000 (purchase) or $9,000 a month (Lease).
Second Step – City Application
The second opening cost of any cannabis application is the city or county fees. We break this down to two types of city fees: (1) Explicit Fees & (2) “Discretionary” Fees.
The explicit fees are what are publicly stated and the discretionary fees are while you are on the process – what a city a can charge you for any reason at any rate at their discretion.
It’s also incredibly common for a city to point out an issue and ask you make a modification so that they can come back in for another inspection, or simply put down a random number of how many hours it will take them. Most cities will also charge you a security deposit, legal fees, consulting fees, and operating agreements with the city, etc. In all of our licenses, we have never paid less than $35,000 for these discretionary fees. As a result, we’ll average these out at $30,000 to be really nice and overly optimistic.
Third Step – Premises Diagram
Our cannabis architect states “While normally an architect would charge $1.50-5 for a commercial project – expect to pay closer to $8-$10 per square foot for a cannabis facility for a good cannabis architect.” Taking the low range of this, let’s tack on another $24,000 for premises diagrams.
Fourth Step – Engineering Plans
Once you have this set up, now you’ll need to get all your electrical, plumbing, and other items in order. Also known as MEP, these engineers are crucial in ensuring you have sufficient utilities coming in to operate your cannabis business. The average cost of this is probably around $2.00 – $4.00 per square foot. Taking the low range of this, another $6,000 for MEP.
Fifth Step – Interior Design
Now comes whether you want your place to look nice or not. This really is aggressive for retail but for other parts of the cannabis chain – the interior design really isn’t taken into account. So while normally it would be about $4.00 a square foot for retail, for our facilities only minimal costs were put into design costing about $1.00 square foot. We’ll tack on $3,000 for this.
Sixth Step – Construction & Equipment
Then let’s also tack on general contractor costs (unless you are one yourself). General contractors get paid by taking a percentage of the overall cost of the completed project. Some will charge a flat fee, but in most cases, a general contractor will charge between 10 and 20 percent of the total cost of the job. This includes the cost of all materials, permits and subcontractors. The average cost per square foot for a commercial cannabis property goes from about $80 to $200.00 per square foot or more with most settling around $100 per square foot. This includes all the material, subcontractors, and labor. So let’s tack on another $300,000.
Seventh Step – State Licensing
A 3,000 square foot facility with anticipated revenue of less than $500,000 – you are looking at a $1,000 application fee + $2,500 licensing fee. When you’ve received this and passed all inspection – now you can finally start operating. However, there’s a few more costs here that most people don’t account for.
Eighth Step – Legal Consultation
For example, the city of Los Angeles requires public notices, community meetings, pre licensing inspection etc. This includes having someone stand in front of the public population of a city at city council hearings, meet and greets with city officials, negotiations and more.
If you want to have a specialized, knowledgeable cannabis attorney – expect easily about 50 – 150 hours of legal work. Let’s take the mid area at about 100 hours.
Ninth Step – Burn Rate
Everything above takes a long time to complete. Let’s estimate a “short” time frame of 12 months * the rent = $108,000. Let’s also add in the security deposit which is usually 3x normal rates. $108,000+$27,000 = $135,000.
TOTAL COST FOR 3,000 SQFT FACILITY BEFORE OPERATIONS BEGIN WITH GOAL OF $500,000 REVENUE
NON-REFUNDABLE AT ALL STAGES
Let’s compare the opening costs for you to start with us in making your own manufactured cannabis products versus the opening costs that everyone else has had to suffer.