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HOW MUCH DOES IT ACTUALLY COST TO START A RECREATIONAL MARIJUANA BUSINESS?

HOW MUCH DOES IT ACTUALLY COST TO START A RECREATIONAL MARIJUANA BUSINESS?

Since the bill's passage in April, New York has been gearing up to become one of the largest recreational marijuana markets in the country. However, with traditional banking and lending routes largely unavailable, it can be difficult to know where and how to start.

Matthew VanDerbeck, a partner in UHY's Northeast region and a leader in the regional cannabis practice, said starting a business in any aspect of the recreational cannabis industry is going to require a significant amount of money upfront. "You have to be able to invest a significant amount of money to move forward and you want to make sure you're doing it in a way that meets the social equity components," VanDerbeck said. "It seems that if the banks aren't really involved, people are going to have to come forward and be willing to invest. And it's going to be a challenge because the rate of return may not be as high as they might like."

Todd Tigges, a partner in UHY's Great Lakes region and a five-year veteran in the cannabis practice, said the startup investment costs of opening a dispensary can start at $1 million to $2 million, depending on real estate prices and local zoning. On top of that, VanDerbeck said the professional fees for attorneys and other services can cost upwards of $150,000 to get through the licensing process.

The key, according to Tigges and VanDerbeck, is to have a good business plan.

"You've got to really know what's the return on investment. What's the amount of money that you can have to put in — how that's
going to play out from a tax perspective — and what's really going to come out of this," Tigges said. "You can have all these ideas
about how this is going to work out, but you have to really model it as part of your business plan."

For New York, these conversations are still in the early stages. VanDerbeck anticipates many of the projects will be funded either by personal money or through small private investors. "The people I've talked to so far, it's been a mix. We've had some individuals who do have the funding themselves, maybe because they have other businesses that either are complementary or they have the money to fund it themselves," VanDerbeck said. "I think it's more in the infancy stage where people are beginning to come together. I think people will find small investors that are willing to invest or maybe pooling of investments to create a fund."

 

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