How to Open a Cannabis Dispensary in Colorado in 2024

The recreational marijuana legalization has completed its first decade recently, and gained over $15 billion in sales through this period. 

With the potential for significant profits and a growing consumer base, opening a dispensary in Colorado can be a rewarding opportunity. However, it requires careful planning, compliance with state regulations, and a strong business strategy. 

Let’s walk you through the essential steps to open a dispensary in Colorado, ensuring you have all the information you need to succeed.

Overview of Cannabis Laws in Colorado

Colorado has been a pioneer in cannabis legalization, setting a precedent for other states. Here's a breakdown of the key cannabis laws in the state:

Key Legal Milestones

Medical cannabis was legalized in 2000 with Amendment 20. Today, patients with qualifying medical conditions can possess up to two ounces of cannabis and cultivate up to six plants.

Recreational cannabis was legalized in 2012 with the passage of Amendment 64. Today, adults 21 and older can possess up to one ounce of cannabis.

Later in 2014, the CA residents witnessed the inauguration of first-ever recreational cannabis dispensary.

Understanding State Compliance Regulations

As a cannabis dispensary owner in Colorado, you must ensure staying compliant for a long, and fruitful experience. Let’s have a closer look into everything you must consider:

Types of Licenses

All cannabis businesses must obtain appropriate licenses from the Colorado Marijuana Enforcement Division (MED). The MED offers different types of licenses:

• Retail Marijuana Store License
• Medical Marijuana Center License
• Retail Marijuana Cultivation Facility License
• Medical Marijuana Cultivation Facility License
• Retail Marijuana Products Manufacturer License
• Medical Marijuana Products Manufacturer License

Security Regulations

• Surveillance Systems: Dispensaries must install and maintain a robust video surveillance system that records all areas where cannabis is stored, handled, and sold. Note that cameras must have a minimum resolution of 640x470 pixels and provide 24-hour continuous recording.
• Alarm Systems: MED requires all licensed premises to hold a professionally monitored alarm system to prevent unauthorized access and detect breaches.

Record-Keeping and Reporting

• Inventory Tracking: Dispensaries must use a state-approved seed-to-sale tracking system, such as METRC (Marijuana Enforcement Tracking Reporting Compliance), to track all cannabis products from cultivation to sale.
• Transaction Records: You must keep detailed records of all sales transactions, including customer information, product details, and purchase amounts. You must make these records available for state inspections.
• Employee Records: Dispensaries must keep comprehensive records of all employees, including training certifications, employment history, and background checks.

Point-of-Sale Regulations

• ID Verification: Customers must present a valid ID proving they are at least 21 years old.
• No Minors Allowed: No one under 21 is allowed in the restricted portion of a retail store.
• Limited Hours of Sale: Retail marijuana businesses, such as dispensaries, can operate only between 8 a.m. and midnight. Municipalities can impose stricter hours, so check local laws.
• Packaging Requirements: All marijuana products must be sold in packaging that is resealable, child-resistant, and not see-through. This packaging helps prevent accidental consumption by children and adults.
• Labeling Requirements: All retail marijuana products must use the THC symbol mandated by the Department of Revenue. This symbol serves as a warning that the product contains marijuana.

Additional Considerations

• Drug Testing at Work: Employers can still test for marijuana and make employment decisions based on drug test results. Be aware of your workplace policies.
• Pregnant People: The Colorado government regards marijuana use during pregnancy as unsafe and people using it may have legal consequences. Hospitals may test babies for drugs at birth, and a positive THC result can lead to notification of child protective services. 
• Marijuana Taxes: A 15% retail sales tax applies at the point of sale, and a 15% excise tax is added to the wholesale price of retail marijuana. These taxes do not apply to medical marijuana. Learn more about taxes from the Colorado Department of Revenue.

Penalties for Non-Compliance

Failure to comply with state regulations can result in severe penalties, including:

• Fines: Monetary penalties can range from a few hundred to several thousand dollars depending on the severity of the violation.
• License Suspension or Revocation: Serious violations can lead to the suspension or permanent revocation of your dispensary license, effectively shutting down your business.
• Criminal Charges: In extreme cases, non-compliance can result in criminal charges against business owners and employees.

Getting Your Cannabis Dispensary License — Step-by-Step Guide 

Step 1: Create a Business Plan

A solid business plan is crucial for the success of your dispensary. Key components include:

• Executive Summary: Overview of your business goals and strategy.
• Market Analysis: Research on the local cannabis market and target demographics.
• Company Description: Outline of your business structure and ownership.
• Organization and Management: Details on your management team and organizational structure.
• Services/Products: Description of the products and services you will offer.
• Marketing Strategy: Plan for attracting and retaining customers.
• Funding Request: Amount of funding needed and how it will be used.
• Financial Projections: Forecast of your business’s financial performance.

Step 2: Secure Financing

Since the cannabis industry is still new, and lacks access to the banking sector, having a detailed financial plan and documentation will increase your chances of securing funding. 

Here are a few options you can consider apart from your personal savings, or funds from your friends and family:

• Private Investors: Individuals willing to invest in your business.
• Venture Capital: Firms specializing in cannabis investments.
• Crowdfunding: Platforms that allow you to raise money from multiple small investors.

You can also explore the Cannabis Business Grant offered by the government of Colorado to cannabis businesses eligible for social equity.

Step 3: Find a Suitable Location

Your dispensary’s location can make or break the deal. Here are a few things to consider: 

• Zoning Laws: Ensure the property complies with local zoning laws for cannabis businesses.
• Foot Traffic: Since advertising, and marketing cannabis is quite restricted, your best bet is choosing high-traffic areas that can attract more customers. 
• Accessibility: Convenient access for customers and suppliers.
• Community Attitudes: It’s super-important to gauge the local community's stance on cannabis businesses. If they’re largely against it, your dispensary has slim chances of success.

Step 4: Apply for a Cannabis Dispensary License

When you’re done with the pre-requisites, you can access the MED-regulated marijuana business license application from their official website. This application includes specific addendums for Publicly Traded Companies, Qualified Private Fund, Qualified Institutional Investors, and Marijuana Research and Development Facility.

Next, you must determine which suitability applications (Natural Person, or Owner Entity) need to be submitted alongside your business license application. 

Then, pay the application fees for the MED to process your application. You can pay via check, money order, or credit card. The MED offers an online payment link through the Colorado Interactive Payment System. 

Refer to the MED's Fee Schedule for details.

In Colorado, cannabis businesses may need to pay separate fees due to local jurisdictions. Refer to your application for specific details.

Other Requirements for Regulated Marijuana Businesses

• State Sales Tax License: Apply for the appropriate State Tax License based on your business type. You can visit the Colorado Department of Revenue for more information.
• Labor & Employment Requirements: Meet specific state and federal labor and employment requirements. You can check the Colorado Department of Labor and Employment website for more details.

Submission Methods

Once you’ve completely filled your application, it is ready to be submitted. You can either submit it digitally, by mail, in-person, or drop it off at the office during working hours. For more information and to access the application forms, visit the Colorado MED's website.

Step 5: Build Your Team

Now that you’ve submitted your application, you must start preparing for your dispensary’s operations. As a new business, you must start the hiring process with these positions:

• Budtenders — knowledgeable staff who can help customers make informed buying decisions.
• Managers to oversee daily operations, and manage the compliance-related aspects as well.
• Security personnel to ensure the safety and security of your business.

Design and Set Up Your Dispensary

A well-designed dispensary enhances customer experience and compliance:

• Layout: Optimize customer flow and product display. Consider security measures and ADA compliance especially if you’re opening a medical dispensary.
• Equipment: Invest in point-of-sale systems, security cameras, and storage solutions.
• Compliance: Ensure your design meets all state regulations.

Stock Your Inventory

With the cannabis industry skyrocketing, it’s important to ensure you’re selling quality products for long-term success and customer loyalty. Consider:

• Product Selection: Offer a variety of high-quality cannabis products.
• Supplier Relationships: Build strong relationships with cultivators and manufacturers.
• Inventory Management: Use software to track inventory and sales.
• Compliance: Ensure all products meet state regulations for storage and tracking.

Develop Marketing and Sales Strategies

Last, but not least, no business thrives without customer traffic and sales. Therefore, you need to have a robust marketing and sales strategy. Consider:

• Marketing Plan: Develop a comprehensive strategy covering various channels.
• Effective Channels: Utilize social media, SEO, and community events.
• Brand Identity: Build a strong, recognizable brand.
• Customer Retention: Implement loyalty programs and excellent customer service.

If you’re starting your first-ever cannabis business, it’s smart to outsource such operations for maximum ROI and peace-of-mind.

Challenges for Cannabis Dispensaries & Mitigation Strategies Using Insurance

The cannabis industry in Colorado seems promising, but it doesn’t come without its challenges. In 2024, cannabis dispensaries must address several critical issues to ensure their success and sustainability. 

One crucial strategy to mitigate these challenges is investing in essential insurance policies. Let's look into the top five challenges Colorado’s dispensaries face, and how insurance can provide the necessary protection.

1. Regulatory Compliance

The cannabis industry is heavily regulated, with laws that frequently change and evolve. Dispensaries must comply with a myriad of state and local regulations regarding licensing, product testing, packaging, and advertising.

In 2017, Sweet Leaf, a well-known Colorado dispensary, faced severe penalties for regulatory non-compliance. The Denver Department of Excise and Licenses suspended all 26 of its licenses after discovering illegal sales practices, and they had to pay huge amounts in fines.

With comprehensive insurance, dispensary owners can focus on running their business without the constant worry of potential regulatory violations.

2. Security Risks

Cannabis dispensaries are high-value targets for theft and vandalism due to the significant amount of cash and cannabis products they handle. Ensuring the security of the premises, employees, and inventory is paramount.

Native Roots, another prominent Colorado dispensary, experienced a series of burglaries. Thieves broke into multiple locations, causing substantial financial losses and damage.

In such cases, property and general liability insurance can provide coverage for losses resulting from theft, burglary, and vandalism. 

Such insurance plans help dispensaries recover financially from security breaches, covering the cost of stolen goods and damages to the property. Plus, they can help cover the costs of implementing enhanced security measures to prevent future incidents.

3. Product Liability

Dispensaries are responsible for the safety and quality of the products they sell. If a customer experiences adverse effects from a cannabis product, the dispensary could face legal action and substantial financial liability.

LivWell Enlightened Health, a Colorado dispensary chain, faced a lawsuit alleging that their cannabis contained harmful pesticides, posing a health risk to consumers.

Product liability insurance, therefore, is essential for dispensaries to protect against claims arising from defective or harmful products. This insurance covers legal fees, settlements, and medical costs associated with product-related injuries or illnesses. 

4. Employee-Related Issues

The cannabis industry often experiences high employee turnover, making it challenging to maintain a stable and experienced workforce.

Dispensaries are no exception — they must manage various employee-related issues, including workplace safety, employee theft, and disputes. 

A recent study highlighted that the turnover rate in the cannabis retail industry is hitting a staggering 55%. This constant churn can disrupt operations and increase training costs.

Therefore, Workers' compensation insurance provides coverage for employees who sustain an injury at work, helping employers cover medical expenses and lost wages while ensuring that employees receive the necessary support.

Employment practices liability insurance (EPLI) covers legal costs associated with employee disputes, such as wrongful termination, discrimination, and harassment claims. By investing in EPLI, dispensaries can protect themselves from the financial impact of employee-related lawsuits.

5. Business Interruption

Unforeseen events such as natural disasters, fires, or pandemics can disrupt operations and lead to significant financial losses for dispensaries. Ensuring business continuity during such disruptions is critical.

Business interruption insurance provides coverage for lost income and operating expenses during periods when a dispensary cannot operate due to covered events. 

When you invest in a business insurance policy, you can ensure that your dispensary has the resources needed to resume operations and continue serving their customers.

The cannabis industry offers a lucrative opportunity. However, you can’t expect profitable returns without investing in quality, comprehensive protection.

At Frontier Risk, our risk management experts specialize in offering solutions for cannabis entrepreneurs like you. From advising on how you can manage risks effectively, to helping you create a loop-hole free risk management strategy with our holistic insurance policies, we do it all!

Protect your dispensary and ensure its long-term success by securing the right insurance coverage today — contact Frontier Risk now!