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Medicinal Cannabis Startup Guide
When starting a medical marijuana business or seeking help with a cannabis business plan, knowledge is power. We at Masterplans, the leading cannabis business plan company, have put together this comprehensive guide, whether you’re starting a marijuana delivery service, grow operation, nursery, testing lab, or retailer/dispensary. Jump to a section by clicking below, or go straight to our sample cannabis business plan.
Medical marijuana is legal in 31 states plus Washington, D.C., as of July 2018. Wondering which states have legalized medicinal cannabis? In alphabetical order: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Vermont, Washington D.C. (technically a district, not a state), Washington state, and West Virginia.
Here’s a quick overview of what’s allowed in each state, in terms of medical marijuana possession, sale, and use:
Alaska: Patients with a written doctor’s recommendation can possess up to 1 ounce of marijuana, but standalone medical cannabis companies aren’t allowed.
Arizona: Patients with a written doctor’s recommendation can possess up to 2.5 ounces every 14 days. Patients or their caregivers without a registered dispensary within 25 miles can grow marijuana at home. Medical dispensaries have to grow their own cannabis--standalone wholesale cultivation is illegal, as is wholesale standalone infused product manufacturing. No more medical cannabis business licenses are available.
Arkansas: Patients with a written doctor’s recommendation can possess up to 2.5 ounces. Businesses can’t manufacture medical marijuana edibles that could appeal to minors, such as cookies, brownies, and candy.
California: Patients with a doctor’s recommendation can possess up to 8 ounces (or more if a doctor requests it) and grow marijuana at home. No restrictions on what type of marijuana products medical dispensaries can sell.
Colorado: Patients with an online certification from a qualified doctor can possess up to 2 ounces of marijuana and three mature cannabis plants. Medical marijuana businesses cannot sell edibles that look like a fruit, animal, or person.
Connecticut: Patients with a written doctor’s recommendation can possess up to 2.5 ounces. Medical marijuana businesses can sell flower, oils, topical products, and edibles in the form of baked goods (e.g., no gummies or liquids).
Delaware: Patients with a doctor’s certification can possess up to 6 ounces or buy 3 ounces every 14 days. All medical marijuana dispensaries, or “compassion centers,” must be not-for-profit and grow their own marijuana or get it from another compassion center.
Florida: Patients with a doctor’s certification can possess as much as their doctor suggests. Medical dispensaries can’t sell smokable forms of marijuana.
Hawaii: Patients with a doctor’s certification can possess up to 4 ounces of marijuana and 10 plants. Medical marijuana businesses can sell flower, oils, lozenges, and so on but not edibles or drinks.
Illinois Patients must have a written doctor’s certification, background check, and be fingerprinted; then they can possess up to 2.5 ounces every 14 days. Medicinal cannabis companies cannot sell edibles or infused products that have to be refrigerated.
Louisiana: Patients with a doctor’s recommendation can possess a 30-day supply. Medical marijuana businesses can’t sell flower, vape products, or beverages; they can sell oils, extracts, lotions, pills, sprays, capsules, and gummies.
Maine: Patients with a doctor’s recommendation can possess up to 2.5 ounces of “prepared marijuana” and six plants, as well as grow at home. Medical dispensaries must be not-for-profit and grow their own product.
Maryland: Patients with a written recommendation from a certified doctor can possess up to 120 grams (about 4 ounces) of flower and 36 grams of THC-infused products every 30 days. People can’t grow marijuana at home, but they can make their own edibles using dispensary extracts. Medical marijuana companies can sell capsules, tinctures, and non-edible infused products, but not edibles.
Massachusetts: Patients with an electronic doctor’s or nurse’s recommendation can possess up to 10 ounces every 60 days. Medicinal cannabis businesses can’t sell edibles that look like candy. Standalone cultivation wholesalers aren’t allowed--dispensaries have to grow most of their own cannabis.
Michigan: Patients with a certification from a qualifying doctor can possess up to 2.5 ounces of usable product. Edibles can’t resemble candy or appeal to kids.
Minnesota: Patients with a certification from a doctor, nurse, or PA can possess as much as the medical professional says is a 30-day supply. Businesses can’t sell the plant form, dried leaves, or edibles; only pills, liquids, and topical or vaporized products.
Montana: Patients with a written statement from a doctor can possess up to 1 ounce of usable product and grow at home. Medical marijuana businesses can sell any type of product, but they aren’t allowed to advertise.
Nevada: Patients with a written statement from a qualifying doctor can possess up to 2.5 ounces or 12 plants every 14 days. Medicinal cannabis businesses can sell any type of marijuana as long as they comply with strict rules for labeling, tracking, and testing.
New Hampshire: Patients must have been seeing a qualified doctor or nurse for at least three months before getting a recommendation from them. Then patients must register with a single medical marijuana dispensary, from which they can purchase up to 2 ounces every 10 days. Medical marijuana dispensaries, called “alternative treatment centers,” must grow their own marijuana or get it from another medical dispensary (no standalone cultivation wholesalers).
New Jersey: Patients must get a certification from a doctor, register with a single dispensary, and then can purchase up to 2 ounces every 30 days. Medical marijuana dispensaries can sell flower with 10% THC or less, dried herb, and lozenges; no tinctures, waxes, or edibles. Medical marijuana dispensaries must grow their own marijuana (no standalone cultivation wholesalers).
New Mexico: Patients must get a written recommendation from a healthcare professional licensed to prescribe medication in New Mexico; then they can possess up to 8 ounces every 30 days. They can grow cannabis at home. Businesses can sell concentrates with no more than 70% THC.
New York: Patients must get a recommendation from a doctor or nurse who’s taken a medicinal cannabis training class. Medical marijuana companies can only sell capsules, liquids, vape oil, and topicals; no flower or edibles.
North Dakota: Patients must apply for an ID card and get a written certification from a healthcare professional, after which they can buy 2.5 ounces of dried leaves and flower every 30 days. Businesses cannot sell edibles, nor can they run a dispensary and grow operation at the same location.
Ohio: After their doctor registers them, patients can buy a 90-day supply of “plant material,” lotion, cream, ointment, oil, tincture, edibles, or capsules. Vaping is allowed, but smoking and combustion are not.
Oklahoma: Rules are still being determined, as legalization is so new. However, it looks like medical marijuana dispensaries will not be allowed to sell smokable products.
Oregon: After a primary doctor provides a statement, patients can possess up to 24 ounces of usable product, 4 marijuana plants, and 50 seeds. They may grow marijuana at home. Medical marijuana businesses must adhere to various concentration maximums.
Pennsylvania: Patients must get a recommendation from a doctor who’s taken a medicinal cannabis training class, after which they can possess a 30-day supply. Businesses can sell liquids, vape products, pills, oils, tinctures, gels, and creams, but not flower or edibles.
Rhode Island: Patients must have a written recommendation from a doctor licensed in the state, or Connecticut or Massachusetts. Then they can possess up to 2.5 ounces and grow up to 12 plants. Only three dispensaries are allowed in the state (which exist already), but the number of cultivation businesses is unlimited.
Vermont: Patients must get a recommendation from a healthcare professional licensed in the state, or Massachusetts, New York, or New Hampshire. After that, they can possess up to 2 ounces every 30 days. They can grow marijuana at home. Medical marijuana dispensaries have to grow their own product or get it as a donation from another dispensary (no standalone wholesale growers).
Washington D.C. (technically a district, not a state): Patients must get a recommendation from a doctor, after which they can possess up to 4 ounces per month. No restrictions on the type of product sold.
Washington state: Washington has combined its medical and recreational marijuana sales, so a doctor’s recommendation isn’t required anymore. People can grow up to six plants at home and possess up to 3 ounces of marijuana, 21 grams of concentrate, 48 ounces of solid infused product, or 216 ounces of liquid infused product. No limits on type of product sold.
West Virginia: With a written recommendation from a doctor certified to recommend marijuana, a client can possess up to a 30-day supply. Businesses cannot sell smokable flower or ediblesentrate, 16 ounces of solid infused product, or 72 ounces of infused liquid product. But people cannot grow marijuana at home. Businesses can grow and sell recreational marijuana and products.
More states may legalize medical marijuana soon. On November 6, 2018, voters in Utah will decide whether to legalize it. If passed, Utah’s Proposition 2, also called the Utah Medical Cannabis Act, would enable cannabis grow operations, dispensaries, testing labs, and processing facilities to get licensed. Dispensary licenses would be capped at one per every 150,000 residents in a county. Missouri is also considering legalizing medical marijuana, as a bill passed in the state’s House and is currently with its Senate.
Marijuana industry revenue in 2017
The legal cannabis industry, while relatively new, is really lucrative. In 2017, legal marijuana sales in North America were up 33% from the year before--a staggering increase, considering most industries see 5% annual growth on a good year. Revenue hit $9.7 billion in 2017 and will no doubt exceed $10 billion in 2018. While the double-digit growth can’t continue forever, the cannabis industry is currently thriving.
Cannabis startups and investment activity
In 2018 so far, nearly 150 mergers and acquisitions have happened in the cannabis industry--almost twice as many as the same period in 2017. One successful and high-profile medicinal cannabis startup is Tilray, the first marijuana-producing company to have an IPO (sell public stock). Tilray cultivates cannabis in Canada and Europe, then processes it and sells it to medicinal patients in Australia, Canada, and Germany. Tilray had 2017 sales of more than $20 million.
Another success story is Eaze, the “Uber of weed,” delivering medicinal marijuana to California patients. According to TechCrunch, Eaze boasted year-over-year gross sales growth of 300%, and it’s expanding into recreational marijuana delivery too.
Bhang is another medicinal cannabis company, but with a twist--it was launched by a master chocolatier and sells medicinal cannabis chocolates. (The company has even expanded into gum and vape oil.) Since launching in 2010, Bhang has since won several Cannabis Cup awards, partnered with hip hop group Cypress Hill, and sold 5% of its ownership for $1 million.
Difference between medicinal and recreational cannabis
Strains of cannabis vary: some treat various physical ailments, some are calming, and some are energizing. Types of cannabis with more CBD are more commonly used to treat medical conditions, and types with more THC are typically used to relax and for their psychoactive effects. However, there is no difference between medicinal and recreational cannabis. The product is the same; the only difference is how it is licensed, who can legally produce it, and who can legally obtain it. For example, in Arkansas, medical marijuana dispensaries can’t legally sell cannabis-infused brownies or candy, whereas in Connecticut, businesses can sell marijuana brownies but not gummies or beverages, and medical dispensaries in Florida can’t sell smokable product. And all of those products are legal in California!
In states where medical marijuana is legal, typically patients must have a physician-issued medical marijuana card to purchase it (specific rules vary by state). Whereas in states where recreational cannabis use is legal, typically anyone of age (21 and over) may use marijuana. Some states have legalized recreational marijuana cultivation and dispensaries, while others have only legalized recreational marijuana consumption, making sale difficult.
Medicinal use of cannabis is legal in many more states than recreational use is. (Recreational use is only legal in nine states, plus Washington, D.C.) However, the tide seems to be shifting toward legalizing recreational use and skipping the medicinal step altogether. That simplifies access and is how Canada recently legalized cannabis.
Types of medicinal cannabis businesses
Interested in launching a medicinal cannabis startup, but not sure which type of company is right for you? Here’s a quick overview of several options.
Medical marijuana dispensary: A retail storefront where medical marijuana patients may purchase cannabis. Typically, dispensaries must abide by strict state-mandated protocols for security, video surveillance, and product tracking. (Regulations vary by state.)
Medical marijuana cultivation: Also called a “grow operation,” cultivation businesses grow cannabis plants for wholesale distribution to retailers. Some cultivators also process the plants and manufacture products, such as edibles.
Product manufacturing: These businesses make medical cannabis products to relieve pain and other conditions. Products include CBD oil, edibles, gummies, tinctures, sprays, capsules, topical balm, and even CBD gum. They sell products to dispensaries and/or online.
Delivery service: Companies like Nugg and Eaze enable medical marijuana patients to order cannabis products online and then get convenient, confidential at-home delivery. Delivery services provide one-time or recurring delivery. Cannabis delivery is only legal in a few states, however, such as California.
Testing facility: Quality control and safety are major concerns in the marijuana industry, particularly the medicinal side. Cannabis testing labs analyze products for things like pesticides, THC/CBD potency, contaminants, heavy metals, and terpenes. One benefit of starting a marijuana testing facility is that some states, such as Delaware and Alaska, legally require dispensaries to get their cannabis tested. If you don’t want to open an independent marijuana testing lab, you can become a licensee of an established cannabis testing company. Testing labs use methods like liquid or gas chromatography.
Ancillary business: There are countless possibilities for other cannabis companies. You can start a cannabis consulting firm, law office, marketing or advertising agency, payment platform, dispensary security software company, app, social network, packaging business, or accessory manufacturer. One example of a pioneering medicinal cannabis startup is PotBiotics, which recommends certain cannabis strains to physicians based on EEG brain scans.
Map of U.S. states for state-specific info
Marijuana Legalization Status
Medical Cannabis Broadly Legalized
Recreational and Medical Use Broadly Legalized
No Broad Laws Legalizing Cannabis Use
How much does it cost to start a dispensary, grow operation, etc.?
Your costs will vary, based on the type of medicinal cannabis company you start, which state you’re located in, and other factors. For example, a grow operation will probably be much more expensive than a marijuana delivery service or an app. And the application fee for a medical marijuana business varies widely by state, from only $150 in Louisiana to $20,000 in New Jersey. Make sure you research your state’s specific requirements. But in general, here are some costs you should plan for:
Fees: Application fees, licensing fees, grower’s fees, permits, etc. For example, new medical marijuana testing labs in Maryland only have to pay $100 for a two-year registration. Other states and license types are much more expensive. In Arkansas, a medicinal cannabis grower must pay $100,000 for a license every year, plus a $15,000 application fee. Some states have one fee for any type of cannabis business; others charge different fees for dispensaries vs. growers vs. testing labs.
Start-up expenses: Just like in any industry, your cannabis business will probably need to budget for website development, logo development, software, and so forth. If you hire a branding consultant, that falls in this category as well. (Remember: expenses differ from assets in that you can’t resell them or return them for a refund, which you often can with assets.)
Assets: These are the physical purchases you’ll need to make, like fixtures, furniture, equipment, office supplies, computers, signage, jars and display cabinets, measurement scales, security systems, a safe, and so forth.
Working capital: While startup capital is the funds you need to launch your business, working capital is the funds you need to keep it going, especially in early months when revenue is low and your company is not yet established with customers. Your financial projections in your business plan (see more about business plans below) will tell you how much it will cost you to run your company. It’s wise to have enough working capital to keep your company going for six to eight months, just in case.
Cannabis-specific expenses and assets: Some states require cannabis companies to have a high-tech security system in place, including video surveillance, or test a certain percent of product on a regular basis. Find out beforehand, because costs like those can add up quickly.
Business plan: Some states require a business plan as part of your application. Even if not, it’s very wise to have one. Whether you budget for business plan software, hire a firm like Masterplans to develop your business plan, or pay for the latest market research and DIY, include business plan costs in your planning.
Legal expenses: In addition to being highly regulated, the cannabis industry can be confusing, with detailed regulations and no overarching federal standard. You don’t want to get sued or get your application denied. An experienced cannabis attorney, therefore, can be worth his or her weight in gold.
You saved us thousands of dollars and so much time. Because of that, we were able to raise over $2 million.
Jesse Peters, Owner Eco Firma Farms
Here are two examples of real Masterplans clients who launched businesses in the medical marijuana industry and their startup funds. In 2017, a medical marijuana cultivation and dispensary client of ours in Arkansas was investing $437,000: $111,000 for expenses (legal, consultants, and deposits for utilities, insurance, and lease), $158,000 for equipment and inventory, and $125,000 for working capital.
In 2018, one of our clients was entering the Maine medicinal cannabis market, with $5 million needed. This included $2 million for lab and kitchen buildout, $1.6 million for five dispensaries, and $1.4 million in working capital. Each dispensary was projected to have annual expenses of about $326,000: $30,000 in annual rent, $8,000 for utilities, $144,000 for payroll and payroll taxes, and $144,000 for selling, general, and administrative expenses. Again, your mileage may vary.
How to start a dispensary, grow operation, or other cannabis business
1. Do some preliminary research and planning
Before launching your medicinal marijuana company, a little planning and googling will save you a lot of trouble. First, figure out if your market is already saturated with medical cannabis businesses. Your state (or county or city) may only offer a limited number of licenses for each cannabis business type, and it may have already granted all of them. If licenses are still available, then research if your geographic area is already home to many medical marijuana businesses. If so, you may want to choose a different part of town or a different city altogether. If there are no cannabis companies in the spot you want, it might be because a school is located there--some states have rules about how far away you must be from a school.
Even if there are existing cannabis companies in your desired area, competition could be weak, so read online reviews or even interviews to see how your competitors are positioning themselves and what their customers say. Maybe staff is not knowledgeable, there is little product variety, or prices seem too high. Any weaknesses you discover can provide valuable insight into how your company can be better!
Next, research fees to see if you can afford to launch and sustain a medical marijuana company. Check out your state’s Department of Health or health authority website to see what the current fees are, both for the initial licenses you’ll need as well as license renewal fees. (The official site will end in .gov or .us, so look for that.) There may be other miscellaneous fees in addition to the initial licensing fee. For example, in Oregon, new medical marijuana dispensaries must pay a one-time $35 background check fee and an annual $480 cannabis tracking system fee, in addition to a one-time application and registration fee of $4,000. In Pennsylvania, the permit fee for a medical marijuana dispensary is a whopping $30,000 (refundable if you don’t get the permit), in addition to a non-refundable fee of $5,000 and needing to prove you have at least $150,000. You don’t want to go broke before your medical cannabis company even launches!
After that, decide on which type of medical marijuana business you want to start (based on competition and available licenses, as well as your personal strengths). Then choose a name (here are a few ideas). Make a long list of name options, because some will already be taken. Google all name ideas to see what comes up. Is the web domain ending in .com available for your potential business name? Is the Twitter handle still available? Is it trademarked already? Cannabis business owners seem to love marijuana-related puns, but you don’t necessarily have to go that route. The best name will be easy to remember and spell correctly.
Once you’ve done your homework, seek legal council from an intellectual property attorney, who will be able to tell you if anyone else has started filing trademark protection for your company’s name. The last thing you want is to start paying for your logo development, signage, and website, only to find out that someone else was ahead of you. You also need to decide on a business structure: LLC, S-corporation, sole proprietorship, etc. In Arizona and Maine, medical marijuana dispensaries must be nonprofits. However, newly passed legislation in Maine, LD 1539, will enable medical marijuana dispensaries to be for-profit.
2. Develop a business plan
Some states and/or municipalities require you submit a comprehensive business plan. Even if they don’t, you should still create one. A solid business plan will provide a comprehensive look at your company and financial future, helping you make major financial decisions like whether you need outside investment funding. Your business plan will either confirm that your startup is positioned for success or reveal its weaknesses. It’s much cheaper and easier to find this out before you launch than after!
A medical marijuana business plan should include these components:
Product/service description: What will your company do, and what makes it unique? Be as specific as possible. For example, which strains of cannabis will you grow and/or sell?
Market research: How many people live in your area, and what is their average income? How many have illnesses treatable with medicinal cannabis, and how much do they currently spend on medical treatment?
Competitors: Who are your direct and indirect competitors, and what are their strengths and weaknesses? What do customers say about them online? How will you be better and different?
Management bios: What relevant experience do you and your main team members have? Highlight experience with leadership and management, customer service, or agriculture, even if it’s not in the cannabis industry. Of course, if anyone on your team has worked for a dispensary before, great!
Financial projections: Create a five-year financial forecast that includes your annual expected revenue, direct costs, operating expenses, and net profit. Your revenue forecast for each year should include revenue, direct costs, and margin. Projected revenue should be based on how much product you expect to sell, the price you will sell it for, how much it will cost you to produce, and expenses like rent, utilities, and payroll. A cash flow statement will demonstrate that you’ll always have enough cash on hand to keep the business going. You may wish to include a break-even analysis that shows when you expect to become profitable, as well as a best case and worst case scenario showing what happens if revenue is higher or lower than expected.
Requirements specific to your area/business type: Your state may require a detailed security plan or info about your seed-to-sale tracking. Requirements vary based on area and type of business (cultivation vs. dispensary vs. testing lab).
As you can see, a cannabis business plan should be highly specific to your location and business type, so a business plan template usually isn’t sufficient.
3. Register your business and apply for permits and licenses Register your business with your state’s secretary of state. (Google [your state name] secretary of state register a business.) If you want to trademark your company name and/or logo, do that on the U.S. Patent and Trademark Office's website, uspto.gov. (It’s slightly more difficult to trademark a slogan, as it must be tied to selling a product and not just informational. Something like “think green” or “natural wellness” is too generic to be copyrighted.)
Now you need permission from your city, county, and/or state. Even in a state where medical marijuana is legal, some cities or counties may not allow it. Your city’s official website should have a page where you can apply for a cannabis business permit. If you’re in California, you also need to get a cannabis tax permit from the California Department of Tax and Fee Administration.
Finally, open a business bank account with one of the nearly 300 banks and nearly 100 credit unions that welcome cannabis businesses. As of early 2018, Partner Colorado Credit Union was the biggest banker for cannabis companies.
4. Get funding As of May 2018, the Small Business Administration (SBA) “prohibits banks from issuing SBA-backed loans to any company that has a direct business relationship with a cannabis or hemp business.” So small business loans guaranteed by the SBA are not available, but you have plenty of other options for funding your medicinal cannabis company:
Bootstrap: use your own money or donations from family and friends.
Get a loan from a private company that caters to the cannabis industry--but beware of high interest rates. A few of these companies include Dynamic Alternative Finance, United Capital Source, Diamond Business Loans, GoKapital, and Green Leaf Money.
Pitch cannabis investment firms like Privateer Holdings, Casa Verde Capital (a venture capital firm founded by Snoop Dogg), or Canna Angels (a network of cannabis angel investors).
5. Meet employer obligations
If your company will have employees, you have to register for an employer identification number (EIN) with the IRS here. You will also need to pay employment taxes and other business taxes. You might also have to register with your state’s employment department, which will enable you to pay unemployment insurance.
6. Consider tax obligations and hire an accountant
Businesses need to pay federal taxes, state income tax, state payroll taxes and property taxes. You should have addressed taxes properly in your business plan, but now’s a good time to double check and hire an accountant familiar with the cannabis industry.
Need help starting a medical marijuana company?
As you can see, creating a cannabis business plan and launching your startup is complex and can be overwhelming. The experts at Masterplans have worked with hundreds of cannabis entrepreneurs like yourself to develop industry-leading business plans to help you meet regulations and get funding. Click below for a free, confidential consultation and learn how we can help you.