How to Open a Dispensary in California

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How to Open a Dispensary in California in 2024

You can open a dispensary in California only after obtaining a cannabis retail license from the state’s Department of Cannabis Control. However, before obtaining a cannabis license, you must complete several steps such as registering your business with the Secretary of State and obtaining local authorization from your municipal government. If you qualify as a social equity applicant, you may be able to have the licensing fee waived and receive support in other forms.

Why Open a Dispensary in California?

The cannabis business is flourishing in California, with legal sales reaching $5.3 billion in 2022. In the previous year, the California Department of Tax and Fee Administration (CDTFA) recorded total cannabis sales in the state as $5.77 billion. Also, from January 2018 to February 2023, the CDTFA estimated the total cannabis tax revenue generated by the state as $4.6 billion, including $1.8 billion in sales tax and $2.3 billion in cannabis excise tax. According to Forbes, the 2022 sales figure represents 20% of the estimated $26 billion cannabis industry in the United States.

While the California cannabis market is competitive, with about 1,000 legal dispensaries in the state, many more entrepreneurs are entering the market to get a piece of the pie. However, before embarking on the journey to enter the cannabis retail market in California, it is vital that you understand the steps required to obtain the license needed to set up a dispensary.

Types of Dispensary Licenses in California

The Department of Cannabis Control issues cannabis retail business licenses to qualified persons to set up dispensaries in the state. You can apply for any of the following license types:

  • Type 9 (non-storefront retailer or delivery only) license: This license allows you to sell marijuana or marijuana products to customers only via delivery
  • Type 10 (storefront retailer) license: This license allows you to establish a physical location where marijuana and marijuana products may be sold to customers. You can also deliver marijuana and marijuana products to customers if you have this license

Note that if you intend to do any two of cannabis cultivation, manufacturing, and distribution or distribution transport-only, alongside running a cannabis dispensary, you must obtain a Type 10 (also called a microbusiness) license from the DCC.

How to Get a California Dispensary License

The first step to obtaining a dispensary license in California is to learn the regulations for cannabis dispensaries in the state. The California Department of Cannabis Control has outlined requirements for standard operating procedures, how dispensaries should be set up, and other retailer-specific rules in its laws and regulations.

To obtain a California dispensary license, follow these steps:

  • Choose an Entity Type and Business Name: You must determine the type of entity that you intend to form and the name you want to give your business. Your entity type affects how your business and its participants are taxed, your ability to transfer ownership interests and assets, operate the business, and your personal liability
  • Register your Business Name with the California Secretary of State: You must file organizational documents with the California Secretary of State and pay the appropriate fees. You can access the required forms on the California Secretary of State website. Some filings, such as for corporations, do not require using a prescribed form, as free-form documents are accepted. Depending on your entity type, it may be necessary to register the entity with the California Secretary of State
  • Entities required to register: Corporations (such as for-profit and nonprofit), Limited Liability Companies (LLCs), Limited Partnerships (LPs), and Limited Liability Partnerships (LLPs)
  • Entities that may register: General partnerships are not required to register with the California Secretary of State but may choose to if desired
  • Entity Not Requiring Registration: Sole proprietorships
  • Register a DBA, if applicable: If you choose to conduct your business under a name other than your legal entity name, you may file a fictitious business name or Doing Business As (DBA) name with your county clerk or recorder in the county where your business will be located. For more information, refer to the county website or Sections 17900 through 17930 of the California Business and Professions Code
  • Obtain the Required City or County License, Permit, or Other Authorization: Filing an organizational document with the Secretary of State does not provide your business with the required license to conduct a business activity. The state has a dual licensing system, as businesses are required to obtain a county, city, or county and city permit, license, or other authorization before applying for a state license. Some jurisdictions do not allow cannabis businesses to be located within their borders
  • Obtain a Seller's Permit from the CDTFA, if applicable: To operate a cannabis dispensary in California, you must register with the California Department of Tax and Fee Administration (CDTFA) to get a seller's permit. This is a prerequisite to applying for a retailer license from the California DCC
  • Obtain State Cannabis License: Upon fulfilling the above conditions, you may apply to the California Department of Cannabis Control for a retail cannabis license. Create an account on the California DCC licensing system for retailers. After verifying your account, log in, complete the required fields, and upload the necessary documents. The licensing system allows you to save your progress as you go. Therefore, you do not need to complete it all in one sitting. Upon finishing the application, sign and submit it. After, the licensing system will notify you of the required application fee. Note that the DCC will not process the application until you pay the application fee
  • Pay the License Fee: If your application is approved, you will get a notification informing you to pay the license fee. You may complete the payment using a money order, credit card, bank account, or check. If you opt to pay in cash, you must schedule an appointment to visit the DCC in person. If your application has missing information or documents, the licensing team will notify you to submit the missing information within a stipulated period
  • Obtain your License: California DCC retail licenses will be issued once the department receives payment for the license fee. The license, valid for one year, can be downloaded from your account on the DCC licensing system
  • Register with the Federal Employer Identification Number (EIN): If you plan to have employees for your cannabis business, you must register your entity as an employer and obtain a federal EIN

The DCC accepts applications for licenses on an ongoing basis. Note that many California jurisdictions limit the number of dispensaries that may be established within their jurisdictional borders. Hence, you must check with your county government to verify if the cap has been exceeded before commencing your application process.

Information and Documents Required for a Dispensary License in California

Per the California DCC Application Checklist, the following documents and information are required when submitting an application for a dispensary (retail) license in California:

  • Evidence that you have the legal right to occupy and use the proposed location
  • A premises diagram. You may use the premises diagram guidance document provided on the California DCC website to prepare your site or premises diagram
  • Proof of a surety bond of at least $5,000 per premises payable to the State of California. An aggregate bond may be used when the same commercial cannabis business holds multiple licenses
  • A limited waiver of sovereign immunity. This applies to Native American Tribes
  • Proof of compliance with the CEQA (California Environmental Quality Act)
  • A certificate of registration, qualification, or status issued by the California Secretary of State if your business entity is a foreign corporation or foreign limited liability company
  • If your business entity is a commercial cannabis business with 20 or more employees, either:
  • A notarized statement attesting that the business will enter into a labor peace agreement, or:
  • A document showing that your business has already entered into a labor peace agreement by providing a copy of the signature page of the agreement
  • If your business entity has fewer than 20 employees, a notarized statement that your business will enter into a labor peace agreement within 60 days of the business hiring its 20th employee
  • A complete list of all owners of your commercial cannabis business as defined under Section 15003 of the California Code of Regulations
  • A list of every financial interest holder as defined pursuant to Section 15004 of the California Code of Regulations
  • A copy of a permit, license, or other authorization from the municipality where the licensed premises will be or is located. If provided, your local jurisdiction has 10 calendar days to confirm the validity of the authorization

The following documents are not mandatory but may be required during the application review process

The following information are also required for each owner:

  • Full legal name
  • Title within the commercial cannabis business
  • Date and place of birth
  • Social Security number or individual taxpayer ID number
  • Contact information (email address, mailing address, and phone number)
  • Current employer
  • Percentage of ownership interest held in the business by the owner
  • Number of the government-issued ID
  • A copy of the owner's application for electronic fingerprint images submitted to the DOJ (Department of Justice)
  • A comprehensive description of any relevant administrative orders or civil judgments as defined in Section 15002(c)(16)(M) of the California Code of Regulations, if any. An owner may provide mitigating information
  • If applicable, a statement of rehabilitation for any conviction as defined in Section 15002(c)(16)(K) of the California Code of Regulations

What Plans Do You Need to Open a Dispensary in California?

The cannabis industry in California is highly regulated. It, therefore, requires a business plan to outline a clearly defined plan for how you plan to set up and operate in compliance with all California DCC regulations related to dispensary businesses. Besides helping attract investors and secure funding for your business, a business plan can help you define your objectives and goals, identify your target market, create a marketing strategy, and identify and mitigate risks in the dispensary business.

Your business plan should cover the following vital points:

  • Executive Summary: This is a one-page summary of your business plan containing highlights, such as your key goals, target market, and financial projections
  • Company Description: The company description provides a detailed overview of your business, including your products and services, mission statement, and competitive advantage
  • Market analysis: This section must describe your target market and the competitive landscape
  • Marketing Plan: This section outlines your strategy for reaching and acquiring customers
  • Management Team: This section must include information on your management team and their qualifications
  • Financial Plan: This section provides detailed financial projections for your business

You will also need to submit a site plan and an operation plan. The site plan must show your dispensary layout, including the location of all entrances, exits, security features, and customer and employee areas. The operating plan must describe how you will operate your business in compliance with all applicable laws and regulations. It should include an inventory control plan, a patient education plan, a patient recordkeeping plan, a dispensary security plan, and a staffing plan.

Are There Municipal Requirements for Opening a Cannabis Dispensary in California?

California allows its counties and cities to decide whether they want cannabis businesses, including dispensaries, to be situated within their borders. Hence, California municipalities can choose to permit, restrict, or even prohibit cannabis dispensaries based on enacted local regulations and ordinances.

The specific requirements, documentation, details, and other fees (besides the state-stipulated fee for a cannabis retail license) that may be required for dispensaries in California municipalities can vary from one municipality to another, as each city and county can establish its own rules and regulations. However, common requirements that dispensaries may encounter when seeking approval from municipalities include:

  • Local Permit or License: Dispensaries typically need to obtain a local permit or license from the city or county where they plan to operate. This permit or license allows them to conduct cannabis-related operations within that jurisdiction
  • Land Use Zoning Compliance: Dispensaries must ensure that their proposed location complies with local land use and zoning regulations. Some municipalities have specific zones where cannabis businesses are allowed
  • Environmental Compliance: Some municipalities require dispensaries to comply with environmental regulations and sustainability practices
  • Public Hearings: In some cases, dispensaries may need to participate in public hearings or community outreach as part of the approval process

You must research and understand the specific requirements and regulations set forth by the municipality where you intend to operate before applying for a dispensary license. Consulting with local authorities, such as the city or county clerk's office, is advisable to ensure compliance with local ordinances and to obtain accurate and up-to-date information on the application process, fees, and documentation requirements.

How Long Does It Take to Get a California Dispensary License?

Dispensary licenses are issued once the California Department of Cannabis Control receives payment for your license. The license certificate may be downloaded from your account on the licensing system. However, the entire process may take several months, from registering the business with the California Secretary of State, obtaining local approval, and completing the online application.

Where Can You Locate a Cannabis Dispensary in California?

California and its municipalities have location requirements for cannabis dispensaries. These requirements vary depending on the city or county, but some common requirements include:

  • Distance from schools and other sensitive areas: Dispensaries must be located a certain distance from schools, parks, playgrounds, and other sensitive areas. This distance varies depending on the municipality but is typically a minimum of 600 feet. For example, in San Diego, the limit is 1,000 feet
  • Zoning: Dispensaries must be located in zones that allow for cannabis businesses. Municipalities typically list permitted zoning districts where dispensaries may be in their local ordinances.

In addition to these general requirements, some cities and counties may have additional requirements for marijuana dispensaries. Hence, you should contact your local county or city office for specific and additional regulations for where dispensaries may be located.

Can Licensees Have More Than One Dispensary Location in California?

Yes, a dispensary licensee can open and operate in more than a single location in the state. While some cities may restrict a dispensary license to only one location within its borders, others allow dispensary licensees to open multiple locations within their borders. Therefore, you must research the local laws in the municipality where you plan to open a dispensary.

How Much Does It Cost to Open a Marijuana Dispensary in California?

The cost of opening and running a dispensary in California can vary wildly due to size, location, and the type of cannabis products you intend to put on your shelves. Typical costs include:

  • License Application Fee: $1,000
  • Annual License Fee: $2,500 - $96,000 (Depending on the business' Gross Annual Revenue)
  • Annual Real Estate Rent Fee: $50,000 - $100,000
  • Annual Staffing Salaries: $150,000 - $250,000
  • Inventory Costs: $50,000 - $100,000
  • Marketing Costs: $10,000 - $25,000
  • Security Systems and Integrated Point of Sale System: $25,000 - $70,000
  • Taxes: 15% sales tax

The up-front investment for setting up a cannabis dispensary in California is between $100,000 and $250,000. However, recurrent monthly operating expenses range between $50,000 and $100,000.

Do You Need an Insurance Policy for a Cannabis Dispensary in California?

Insuring your cannabis dispensary business can help you remain in business by protecting your business from financial losses in a wide range of events, including unforeseen circumstances. According to the California DCC, dispensaries are required to carry:

  • General Liability Insurance: General liability insurance covers common risks related to owning a business, such as lawsuits from customers suffering an injury or property damage at your premises. The California DCC requires dispensaries to have general liability insurance of $1,000,000 per occurrence and $2,000,000 aggregate
  • Surety Bond: A surety bond offers reimbursement if your dispensary fails to adhere to the terms of a contract. The California DCC requires a $5,000 surety bond for each business location

To comply with state law, your dispensary may also need to have a:

Worker's Compensation Insurance: This insurance provides benefits to dispensary employees who are injured or become ill due to their job. Its benefits may include medical expenses, lost wages, and rehabilitation costs

Commercial Auto Insurance: This covers the vehicles used for dispensary business purposes. It may cover a wide range of risks, including injuries and damages to others if your business vehicle is at fault in an accident or damages to your dispensary vehicle from accidents or theft

How to Get a Grant to Open a Dispensary in California

Opening a cannabis dispensary in California requires a lot of funds. Therefore, many entrepreneurs look to source funds via several options. Many of these options include:

  • Self-Funding: Entrepreneurs may use their personal savings or assets to fund their cannabis dispensary
  • Family and Friends: Some entrepreneurs seek investments from family and friends to secure the required capital to start the dispensary business
  • Loans: Entrepreneurs may also apply for business loans from credit unions or private lenders. However, obtaining loans from financial institutions may be difficult due to federal regulations
  • Equity Funding: Raising capital by selling ownership shares in the business to investors is another option that allows for substantial funding but potentially diluting business ownership
  • Cannabis-Specific Brokers and Lenders: Specialized cannabis lenders and brokers provide financing tailored to the industry to cannabis entrepreneurs, helping navigate regulatory challenges but often with higher interest rates
  • Government Programs: California offers social equity programs that provide grants, low-interest loans, or other assistance to individuals from communities disproportionately impacted by cannabis prohibition

Does California Have a Social Equity Program for Cannabis Dispensaries?

Existing and potential cannabis dispensary owners face several challenges in setting up their businesses, such as getting access to capital, getting technical support, and developing business relationships. Setting up a cannabis dispensary can be harder for individuals harmed by cannabis criminalization. In order to promote equity and inclusion in the industry, the California DCC established a Social Equity Program (SEP) to support people and communities negatively impacted by cannabis criminalization and the War on Drugs.

To be eligible for inclusion in the SEP, you must:

  • Be convicted or arrested for a crime involving the possession, sale, use, manufacture, or cultivation of cannabis before November 8, 2016. You may also be eligible if an immediate family member was arrested or convicted of a cannabis crime and lived in a California municipality with drug arrest rates higher than the state average drug arrest rates
  • Live in an area with a population disproportionately impacted by past criminal justice policies. If you resided for at least 5 years between 1980 and 2016 in a California county with drug arrest rates higher than California's average drug arrest rates and:
  • The top 25% (across the United States) for unemployment and poverty; or
  • Have an immediate family member arrested or convicted for a cannabis-related crime before November 8, 2016

You may use the map tool on the DCC website to see if you live in a qualifying jurisdiction

  • Have your household income below 60% of the area's (the municipality where you live) median income, or you qualify for financial aid through a program, such as MediCal, CalFresh, CalWORKS, Social Security disability, and Supplemental Security Income. You may use the charts provided on the equity relief page of the DCC website to look up the income limit in your municipality

You may be able to avoid paying the state licensing fees if you are eligible to participate in the California SEP. You may also be able to enjoy benefits such as:

  • Access to business partnerships
  • Priority application processing
  • Interagency advocacy
  • Low- or no-interest loans or grants
  • Technical support, such as one-on-one consulting and training
  • Reduced or waived local fees
  • Help with navigating cannabis licensing and regulatory requirements

The California DCC recommends that applicants contact their city or county for other specific eligibility requirements that may apply in their jurisdictions and other SEP resources in their areas. For more information on the SEP, see the SEP guidance document and the Apply for Equity Fee Relief page of the DCC website.

Does California Tax Marijuana Dispensaries?

California requires dispensaries to charge a standard 15% excise tax on cannabis sales. Also, a sales tax must be charged on cannabis sales. The sales tax varies from one municipality to another but is typically between 7.25% and 10% in most jurisdictions. Local sales tax also applies to cannabis sales and varies (usually between 5% and 15%) depending on the municipality.

Local sales tax generally goes towards maintaining local services, while cannabis excise tax and state sales tax are remitted to the California Department of Tax and Fee Administration (CDTFA). All three tax forms are usually charged to buyers at the dispensary POS system. Note that medical marijuana sales made to customers with valid California medical marijuana identification cards are exempt from the state sales tax.

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