The weed dispensary rush is on
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Illustration: Allie Carl/Axios
Hundreds of entrepreneurs are rushing to open dispensaries across Minnesota, raising concerns of an oversaturated market.
Why it matters: It's likely to be a rough year for startup dispensaries as they deal with strong competition and a severe lack of supply to sell to customers.
What they're saying: "We're going to see a wave of dispensaries that is larger than the number of dispensaries that we actually need," said Jen Randolph Reise, whose North Star Cannabis Consulting helps startups.
- This same thing has played out in other states, and eventually, there were large numbers of closures and consolidations, she told Axios.
State of play: There are already 41 dispensaries open, according to a Star Tribune tracker. Another 56 have gotten full approval from state regulators under what is known as a microbusiness license, but have not opened.
Yes, but: The elephant in the room is the 1,138 businesses that have gotten preliminary approval to open a cannabis business.
Context: The state's Office of Cannabis Management (OCM) has multiple categories of licenses that companies can get to operate dispensaries. The microbusiness license allows them to operate just one dispensary, though it could also be used for manufacturing.
- The state said it does not know how many of the 1,138 are seeking retail operations versus manufacturing or other licenses, but early data indicate the lion's share will be dispensaries.
Reality check: A year ago, cannabis entrepreneurs worried that there wouldn't be enough licenses and hundreds of businesses would be battling for the 150 full retail licenses that allow for up to five dispensaries apiece.
- Instead, many have pivoted and applied for one of the unlimited microbusiness licenses.
- You can see this rush at some strip malls or corner storefronts, where dispensary signs might be hung, but business hasn't begun. The state requires businesses to first secure real estate before getting full approval.
Zoom out: Here is what the dispensary market looks like in states with more mature cannabis markets than Minnesota, which has a population of 5.8 million.
- Colorado (population 6 million) has 689 dispensaries.
- Washington state (8 million) has about 400.
- Michigan (10.1 million) has 825 dispensaries.
Friction point: The problems for startup dispensaries will go beyond competition, said Jason Tarasek, a cannabis attorney with Vicente LLP. So far, the only suppliers in the state are tribal nations and two medical marijuana companies. A few businesses have obtained cultivation licenses.
- "Logistically and financially, it's a lot harder to launch a grow facility than open a dispensary," he said. "It's just so much more expensive, and it's hard to find people who know how to grow the plant."
The bottom line: Applications for dispensaries are closed, allowing the OCM to see how things shake out over the next 18 months — which is how long applicants have to open their businesses.
- "It's impossible to know how many of those remaining 1,138 micros will end up opening retail cannabis stores — the crystal ball remains foggy," said OCM spokesperson Josh Collins.