Managing The Hidden Costs of Cannabis Dispensary Build Outs

It’s no secret that designing and building out a cannabis dispensary is expensive. When factoring in construction and equipment costs, consulting expenses, and licensing fees, dispensary build outs can cost upwards of $550,000 – far more than the price to build out a traditional retailer.

Setting a budget is an important part of a retail build out, but for dispensary operators, hidden costs unique to the cannabis industry can deplete finances, delay construction, or cancel projects altogether. Still, there are ways that prospective operators can better predict these expenses and address them when they occur.

Renovating Existing Spaces for Dispensaries

Though all retail build outs are likely to incur some unexpected costs, prospective cannabis operators face an even greater challenge to manage expenses when constructing their dispensary. One common expense which often exceeds expectations is the cost to renovate an existing space to suit the needs of a cannabis retailer.

Due to the compliance and security requirements for cannabis businesses, the entire property may need to be gutted and reconstructed to properly operate as a dispensary. To the untrained eye, the property may not seem to need that much work to be converted into a dispensary, but having an expert inspect the property ensures it can be altered within a reasonable budget and timeline. Architects and designers with experience in the cannabis industry can quickly determine a building’s potential to be converted into a dispensary – and the steps it would take to get there.

Leasing Property for Dispensaries

Cannabis dispensaries operating in a leased space may experience property owners who hope to utilize their tenancy to improve the property. There is typically less real estate available that is suitable for cannabis dispensaries, so prospective operators often agree to costly upgrades to secure properties for their license.

“If something is wrong with the property, the property owner should be notified and required to make these repairs and replacements,” said Virginia Maggiore, Principal of RDC. “But in cannabis, this cost often falls on the dispensary tenant.”

Although it is common for tenants to make some upgrades to a leased space, in the cannabis industry, property owners often require dispensaries make extensive alterations to a property. Tenants are not usually responsible for repairing deficiencies in a property or bringing a building up to code, so these additional expenses can prove detrimental to a cannabis retailer’s construction budget.

“In cannabis, I have seen requirements put on the tenants that I have not seen in any other industry, but since clients want to get the location, they agree,” said Virginia Maggiore. “These clients end up spending a lot of money on these renovations.”

City Requirements for Dispensaries

In addition to a dispensary’s costs to meet security and compliance regulations, it is becoming increasingly frequent that cities make further requests of cannabis retail license holders. These city requests range from installing stop signs and planting trees, to purchasing equipment for city use, and often fall outside of a prospective operator’s budget.

“Cities seem to think that all cannabis businesses have a lot of money and will require dispensary tenants to do things well outside their lease, like restripe the parking lot, change the lighting, or rebuild the trash enclosure,” said Virginia Maggiore. “If it was a gas station or a convenience store going into that property, then the city would typically not ask for these types of upgrades.”

Since real estate for dispensaries is limited due to regulatory restrictions and zoning codes, obtaining eligible properties can be competitive and prospective operators often agree to costly expenses to please city officials. Though this can happen in any state, this has been occurring frequently in California cannabis markets.

“Cannabis businesses are often entering blighted buildings or undesirable locations because of boundary restrictions, and cities sometimes see this as an opportunity to upgrade the property by getting new landscaping, new lighting, new irrigation, and more,” said Virginia Maggiore.

Though it is impossible to avoid all hidden costs which may occur during a dispensary build out, using architects, designers, and consultants with experience in the cannabis industry can help operators better predict expenses. Experts know what to look for when selecting real estate, as well as what to expect from city officials and property owners. When planning your next cannabis dispensary build out, work with experts to ensure your dispensary is completed on time and on budget!

How Can RDC Help?

RDC’s team of expert architects and designers have worked extensively with retailers in the cannabis industry. Our team works closely with dispensary owners to design successful and compliant dispensaries with impactful branding, thoughtful merchandising, and scalable space planning. Whether you’re looking to design your brand from scratch or redesign an existing dispensary brand, we’re ready to get started on your cannabis retail project!