The Medical Marijuana Business Matures

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While there is no requirement for dispensary operators to be certified, education and training may help entrepreneurs gain local approval for the facilities. "It's very, very important for people who want to open dispensaries to work with their local government," Grimala says. "It's the local government that's going to dictate whether they want to have this business in their neighborhood. If you open up in a city that does not want you there, they'll find a way to force you out."

Capital requirements for a new dispensary are $80,000 to $100,000 minimum, Grimala says. Richard Lee, who founded Oaksterdam University, agrees. He operates the Coffee Shop Blue Sky in Oakland, a combination for-profit coffee shop and for-profit medical marijuana dispensary that he says brings in $3 million in annual revenue. (Oakland's local ordinance calls for no "excessive" profit, and Lee says so far the city has not deemed his dispensary to be making excessive profits.)

DeAngelo says he advises clients to plan on $250,000 in startup costs for larger operations like his own at Harborside. Along with purchasing marijuana plants and supplies, doing testing, staffing the facility, and providing adequate security, local jurisdictions often impose fees for licensing or conditional use permits, he says.

No Cash Cow

"If you think this is the newest way to make lots of money, I'd say get into another business," DeAngelo says. "Even if you're wildly successful and make a lot of money, you're going to have to give that back to the community" because of the nonprofit business model, which he supports for the future.

"This is an opportunity for social entrepreneurs, who are willing to help suffering people feel better and expand the zone of freedom in our country. The type of person who should get into this business will be looking for less tangible rewards," he says.

Bruce Mirken, communications director of the Marijuana Policy Project, a lobbying and educational organization that advocates legalizing, regulating, and taxing marijuana, says that even in the states with the most liberal laws, storefront dispensaries exist in something of a gray area. While federal enforcement conflicted with state law, many cities were reluctant to issue formal guidelines for dispensaries, leaving the operators in legal limbo, he says. "Things will continue to evolve, and my guess is that more states will be open in time, but that's anybody's guess," Mirken says.

Still, in the past several years, model dispensaries and industry best practices have begun to emerge. The Medical Cannabis Safety Council, in conjunction with other medical cannabis policy groups, is attempting to establish a self-regulatory model built on non-profit industries such as hospital emergency rooms, says Mickey Martin, a founding project adviser for the group and associate editor for West Coast Cannabis Magazine.

Ballot Initiative

DeAngelo says he is optimistic about his company's fortunes. "I believe the Obama Administration is being honest with us when they say we won't be raided by the federal government if we're in scrupulous compliance with state law and local regulations," he says. He and other activists are collecting signatures to place a marijuana legalization initiative on the California ballot next year.

Tax Cannabis 2010 would allow cities and counties throughout the state to tax and regulate marijuana for adult use. "We think it will bring our laws in line with reality," Grimala says. Even if that initiative is approved by voters—and it is certain to draw fierce opposition—DeAngelo says he will push for the industry to remain not-for-profit. "The country should get it right this time. Let's take care of our cities and our schools and not give this one to the multinational corporations," he says.

While he favors allowing adult recreational use, he says he is horrified by the idea of children being exposed to over-the-counter marijuana sales. "Do we want kids to walk into 7-Eleven past cigarettes and booze—and marijuana also? Do we want them to open up Rolling Stone and see a two-page glossy spread for reefers?"

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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