How to Start a CBD Dispensary in California

Introduction 

California has been at the forefront of the cannabis market since the beginning of legalization. As one of the biggest cannabis markets in the world today, California is home to both savvy consumers and a wide spectrum of successful entrepreneurs.

California authorized medical marijuana in 1996. In 2016, the state allowed legalized recreational cannabis sales. Currently, legal adult-use sales in the Golden State bring in over $400 million monthly. When business owners see these figures, they inevitably want to know how to start a dispensary in California.

If you are looking to start a CBD business, then let us tell you it is not that easy. 

Opening a dispensary in California requires meticulous planning, a substantial amount of capital, and a slew of paperwork just to get things started.

But the good thing is – if you would like to find out how to start a CBD business in California then this blog has everything you need to know about starting a CBD dispensary in California.

Also Read: Guide to Start a CBD Business

The Legalization of CBD in California 

Medical and recreational marijuana use is legal in the Golden State. The Compassionate Use Act, better known as Proposition 215, was approved by California voters in 1996. Proposition 215 allowed patients and caregivers to possess and cultivate cannabis for medicinal purposes.

The Adult Usage of Marijuana Act (Proposition 64), approved by voters in 2016, made marijuana usage for recreational purposes legal.

AB 374, presented on February 1, 2023, seeks to legalize marijuana cafés in California by enabling dispensaries to provide non-cannabis food and drinks with local approval but prohibiting alcohol, tobacco, and smoking within these venues. Its purpose is to support the legal cannabis industry, promote company variety, and prohibit alcohol and tobacco sales in these venues.

Nevertheless, the governor rejected Assembly Bill 1207, which imposed stringent new regulations on product labeling and packaging, as well as Assembly Bill 374, which would have let marijuana stores run on-site kitchens and hold events.

Also Read: How to Get a CBD License

How to Start a CBD Dispensary in California: The 10-Step Guide! 

1. Research 

The first and most critical step in starting a CBD dispensary in California is to conduct comprehensive research. When you start a business with these many restrictions and regulations, you need to research, analyze, and get everything right so you can get off the right foot and ensure seamless business operations. 

• California’s CBD Market Trends: California is one of the largest markets for CBD in the U.S., but it’s also highly competitive. Research which CBD products are popular across different regions of the state. Keep an eye on emerging trends that are gaining traction in California’s health-focused culture.
• Target Demographics in California: California’s diverse population means your customer base could vary significantly depending on location. So, based on your location – you need to find out what they want and decide the offering accordingly. For e.g., In affluent areas, customers might prefer premium, organic CBD products, while in more price-sensitive regions, affordability might be key.
• Regulatory Research Specific to California: California is a golden CBD state and has certain regulations that CBD dispensaries need to follow. So, before getting started – make sure to research the rules, licenses, and permits of your city & state to get off on the right foot. It ensures you can get started easily and avoid issues later on. 
• Competitor Analysis in California: Identify existing CBD dispensaries in your desired location within California. Analyze their product lines, pricing, customer service, and marketing strategies. For example, if you’re opening in a saturated market like Los Angeles, you’ll need a strong differentiator to stand out. On the other hand, in less saturated markets like Central Valley, there might be more opportunities to capture a loyal customer base.

Also Read: How much Does it Costs to Open a CBD Dispensary 

2. Create a CBD Dispensary Business Plan

As with starting any other business, the first step should always be to draft a thorough business plan. The same goes for starting a CBD dispensary in California as well. Begin with an executive summary, which includes a succinct “elevator” pitch that describes your store concept. Furthermore, furnish particulars concerning the business’s ownership and management structure.

Explain in detail how you plan to merchandise your store after this description. To determine who your ideal client is, do market research on both your target audience and nearby rival dispensaries. Consider how you’ll carve out a niche audience with a distinctive product portfolio.

Try your best to correctly itemize the costs in your budget. Remember to include information about labor, insurance, permits, building, rent, goods, marketing, security, and more. Dispensaries that sell marijuana are required by law to have cash vaults and round-the-clock video surveillance. 

Finally, but not least, outline all of your financial strategies and how you intend to repay your lenders. With all of this in place, you are off to a good start for your CBD dispensary. Stay with us and you will get there.

Also Read: CBD Business Name Ideas

3. Find a Location 

Your dispensary’s location is an important yet tough component of the jigsaw. You must choose a place with adequate room to execute your idea, plenty of parking, and visibility. Initially, and specifically for California, you must decide if you want to operate a recreational marijuana store or only provide delivery services.

There are state-specific laws governing dispensary locations. In California, schools cannot be 600 feet from a dispensary, and local governments have the authority to impose limits on the number of cannabis-related enterprises that can operate in a given region.

Your dispensary must be located in a town that permits cannabis-related enterprises. 61% of cities and counties in California do not allow any retail cannabis businesses. Find the specifics of your location with this interactive map.  You will need to have a location chosen to receive an active dispensary license in California. You also will need the municipality’s approval before applying for a license from the state.

4. Get a CBD License 

Understanding California’s laws governing cannabis shops is the first step in securing a dispensary license. In its laws and regulations, the California Department of Cannabis Control has specified standards for standard operating procedures, the layout of dispensaries, and other retailer-specific guidelines.

To get a dispensary license in California, take the following actions:

• Select the Business Name and Entity Type: You need to choose the name you want for your company and the kind of entity you plan to create. Your entity type influences how your company and its employees are taxed.
• Register your company name with the Secretary of State of California: You must file organizational paperwork with the California Secretary of State and pay the costs through their website.
• Obtain the Necessary County or City License, permission, or Other Authorization: Prior to applying for a state license, businesses operating in the state need to obtain a county, city, or county and city permission, license, or other authorization. This is known as the dual licensing system.
• If necessary, obtain a Seller’s Permit from the CDTFA: In order to obtain a seller’s permit for running a cannabis dispensary in California, you must first register with the California Department of Tax and Fee Administration (CDTFA). This is a requirement before submitting an application to the California DCC for a store license.
• Obtain State Cannabis License: After meeting the prerequisites listed above, you can submit an application for a retail cannabis license to the California Department of Cannabis Control.
• Register for an employment ID with the federal government: You need to apply for a federal EIN and register your company as an employer if you intend to hire staff for your cannabis business.

Also Read: How to Get a CBD License

Keep the Best Security Practices in Mind

Every state where cannabis is allowed for recreational use has rules governing dispensary security. California has laws governing security guards, cameras, and other things.

According to the regulation: 

• Every licensed establishment must have a digital video surveillance system with at least one camera with a resolution of 1280 x 720 pixels. Every camera must be positioned such that it can see clearly any activity taking place on the licensed premises within 20 feet of every point of entry and departure. 
• Cameras should also make it possible to identify any individual and any activity in any location that needs to be filmed in accordance with the subsection in a clear and certain manner.
• The monitoring system should cover places where cannabis or cannabis products are weighed, packed, stored, loaded, and unloaded for travel, prepared, or transported on licensed premises.
• Cameras must record continuously for a minimum of 15 frames per second, seven days a week. The minimum retention period for surveillance recordings is ninety calendar days.
• In addition to video surveillance, dispensaries must employ experienced security guards to be present during business hours. These security guards have to be registered with the Bureau of Security and Investigative Services and be at least 21 years old. 
• Lastly, dispensaries are required to install security alarm systems from licensed alarm company operators and employ locks of commercial quality.

Read the Dispensary Security Guide to learn where most dispensaries are vulnerable, and then implement best practices for physical security and cybersecurity.

5. Hire the Best People 

As the opening of your CBD dispensary in California draws near, it’s time to hire and educate staff members. This step is critical to the success of your dispensary.

Make an organization chart for your dispensary first. Based on your business plan, location, store design, and goal, what role will you play in day-to-day operations, and how much extra staff will you require? 

What makes up the hierarchy? What advantages are you going to provide? And do you have the money to pay your employees what they deserve?

To begin with, you’ll need a manager for your store, bartenders or cannabis sales associates for serving clients and completing orders, security, a greeter for customers (who can also secure the entryway), and someone to handle inventory and/or compliance. Depending on the size and complexity of your organization, you may require more or fewer team members.

Make sure you are aware of California’s labor rules in general as well as those that apply specifically to cannabis companies. These could involve obtaining employment IDs for cannabis, processing background checks and fingerprints, enforcing age restrictions, requiring certification training attendance, payroll taxes, at-will policies, workplace safety regulations, and more.

Also Read: How to Market Your CBD Business on Facebook

6. The Security Practices to Follow

There is more to dispensary design than just the location and aesthetics of your business. It’s how customers perceive your company.

Here is a brief list of things to think about when designing and arranging your store:

• How consumers will navigate the store
• Will they use a kiosk, handheld device, or terminal to make their payment?
• Are there distinct ordering processes for in-person and online orders?
• How will your merchandise be presented?
• The components and aesthetic of your brand
• Utilizing the entryway or waiting area
• Doorway security issues
• Where safe stock is kept (in a vault or, if necessary, on the floor)
• Where employees will work while standing
• A secure personnel space or the break room
• Bathrooms

Also Read: Secure Payment Processing for CBD E-commerce

California has some standards that affect the layout and functioning of your store in addition to the fundamentals of design: 

• Retailers are permitted to sell cannabis products from 6:00 a.m. to 10:00 p.m. You can set more restricted hours with your county or city. This implies:
• The completion of an in-store sales transaction is required by 10:00 p.m.
• Delivery drivers have till 10:00 p.m. to return to the retail location.
• In California, deliveries are accepted.
• Limited amounts of cannabis may be kept in dispensaries for demonstration, sampling, or quick sale purposes. The remainder needs to be kept in a vault, safe, or secure chamber.
• Different localities have different regulations regarding store designs. Thus, when you’re designing a California adult-use shop, be aware of the local cannabis rules.

7. Get an Insurance for your CBD Business

Insuring your cannabis dispensary business can help you stay in business by protecting it against financial losses in a variety of situations, including unforeseen circumstances.

According to the California DCC, dispensaries must carry:

• General Liability Insurance: This type of insurance protects against typical company risks, like lawsuits from clients who are hurt on your property or have property damage occur there. The California DCC requires dispensaries to carry general liability insurance for $1,000,000 per incident and $2,000,000 aggregate.
• Surety Bond: A surety bond provides payment if your dispensary fails to comply with the conditions of the contract. The California DCC demands a $5,000 surety bond for each business site.

Also, in order to abide by state legislation, your dispensary might require:

• Workers’ Compensation Insurance: This insurance covers benefits for employees of dispensaries who suffer illnesses or injuries as a result of their work. Its benefits could include medical bills, missed pay, and rehabilitation fees.
• Commercial Auto Insurance: This provides coverage for automobiles utilized in a dispensary’s operations. It may cover a wide range of hazards, such as damages to your commercial vehicle from theft or accidents, or injuries and losses to third parties if your business car is at fault in an accident.

8. CBD Dispensary Marketing in California 

In this competitive market, you can’t skip on marketing for your CBD busines. You need to get out there in front of the customers, get them talking about you and your business and stay in their mind when they think of CBD & related products. At the same time, CBD is a restrictive industry and you need to be very careful with the marketing. Here’s how you can effectively market your CBD dispensary while staying compliant:

• Social Media: You can start your CBD marketing with social media. It is one of the most popular, effective and cost-efficient way of marketing. You need to adhere to social media platform policies that often restrict paid CBD ads and focus on organic content on social media. Also, be relevant, engage with your customers and post the right blend of content.
• Emphasize Health Benefits: Position your CBD products as part of a healthy lifestyle, focusing on general wellness benefits. However, do not make unverified medical claims, as California law prohibits stating that CBD can “cure” or “treat” medical conditions unless backed by FDA-approved research.
• Right partnerships: Organize workshops and informational sessions to educate consumers about the benefits and uses of CBD. You can also collaborate with local wellness influencers or health professionals to build credibility and attract a health-conscious audience. 
• Email marketing: It is another crucial marketing method to reach out your customers, keep them updated of your business, products and special offers to boost conversion and retentio. But, in email marketing – you need to comply with the CAN-SPAM Act and avoid making unsubstantiated claims.
• Optimize for Local Search: Enhance your visibility in local searches by optimizing your Google My Business profile and using location-specific keywords.
• Cross-Promotions: Partner with local gyms, yoga studios, or health food stores for cross-promotions to attract a broader audience that values health and wellness.

To Conclude 

Wrapping up, starting a CBD dispensary in California involves careful planning, thorough research, and strict adherence to state and city regulations. By understanding the market, ensuring compliance, and effectively marketing your business, you can position your dispensary for success in this thriving industry.

And, we hope our blog has got you to a solid start. If you are stuck somewhere – it is always receomnded to reach out to a professional who can help you with your challenge and get you started. 

And, if you are looking to ensure safe payments, smooth transactions, manage inventory, personalize marketing efforts, and streamline operations, get your hands on reliable CBD payment processor and POS system. To make your job a bit easier, you can book a free demo with CBD Merchant solutions. We are a CBD compliant payment processor and POS provider. Avail your free demo now.