How to Open a Dispensary in South Dakota

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How to Open a Dispensary in South Dakota in 2024

To open a medical cannabis dispensary in South Dakota, you must obtain permission from both the local and state authorities. Local governments in South Dakota cannot prohibit the operations of medical cannabis dispensaries in their jurisdictions. However, they may regulate their operations and limit the number of dispensaries permitted within their boundaries. Hence, a prospective medical cannabis dispensary owner in the state must understand such regulations before opening their business in any municipality.

Why Open a Dispensary in South Dakota?

According to the weekly patient data released by the South Dakota Medical Cannabis Program, there were only 652 registered medical marijuana patients in the state as of May 10, 2022. The number had increased to 3,768 patients by October 11, 2022, a 478% increase in 5 months. By October 10, 2023, there were 12,017 registered patients in the state. Hence, in 17 months, the number of registered medical marijuana patients in the state had increased by 1,743%, and more medical cannabis dispensaries should be opened to serve them.

Types of Dispensary Licenses in South Dakota

The medical cannabis establishment license is the only type of dispensary license in South Dakota. A dispensary licensee can only sell medical marijuana to registered medical cannabis cardholders.

How to Get a South Dakota Dispensary License

  • Register with the South Dakota Secretary of State (SOS) as a business entity
  • Get local government compliance certification
  • Apply to the South Dakota Department of Health (DOH) for a dispensary license via the Application portal
  • Obtain a certificate of occupancy from the city/county after getting the permission of the state. Some municipalities may issue certificates of occupancy before the state’s license. Where there are more dispensary applicants than the available dispensary slots in a city/county, a draw/lot is conducted by either the DOH or the municipality to determine successful applicants

The South Dakota Department of Health (DOH) issues medical cannabis dispensary licenses in the state. They can only issue licenses after the local authorities have certified the applicants. Local municipalities determine the number of dispensaries that can operate within their jurisdictions and when applications can be made. While some cities have exhausted their dispensary license allocations, others are still accepting applications.

Information and Documents Required for a Dispensary License in South Dakota

The following information and documents must be submitted to the Department of Health when applying for a South Dakota dispensary license:

  • Completed application form (on the portal), including information of all owners. South Dakota marijuana law requires at least one of the owners to be a resident of the state
  • Deed of property or current lease
  • Form E - Local Government Compliance Certification
  • Copies of government-issued identification cards of principal officers and board members
  • Copy of article of incorporation
  • Copy of bylaws
  • Operating agreement
  • Revenue sharing agreement
  • Application fee
  • Business plan

What Plans Do You Need to Open a Dispensary in South Dakota?

Prospective cannabis dispensaries are required to submit business plans before they can obtain medical cannabis dispensary licenses from the South Dakota Department of Health. A business plan shows the structure and operational procedures of the dispensary. The following should be included in a South Dakota dispensary’s business plan:

  • Management plan
  • Organizational chart
  • Site plan
  • Operating hours
  • Marketing plans
  • Workplace safety plan
  • Security plan
  • Waste management plan
  • Wastewater plan
  • Pre-employment screening procedures
  • Access control plan

Are There Municipal Requirements for Opening a Cannabis Dispensary in South Dakota?

South Dakota Codified Law, Section 34-20G-59, prohibits local government authorities from banning medical marijuana dispensaries in their jurisdictions. However, municipalities may limit the operations of dispensaries to specific zones within the municipality and the number of dispensaries that can operate within their boundaries. In addition, entities interested in opening dispensaries must obtain local government approvals and submit them to the DOH during the application process.

How Long Does It Take to Get a South Dakota Dispensary License?

There is no specific time frame for obtaining a medical cannabis dispensary license in South Dakota. The time it takes depends on how long it takes to get certification from the local authority and the number of applicants for dispensaries in a municipality.

Where Can You Locate a Cannabis Dispensary in South Dakota?

South Dakota prevents local authorities from prohibiting cannabis dispensaries in their jurisdictions. However, the following requirements must be met by prospective medical cannabis dispensaries in the state:

  • Dispensaries must not be located within 1,000 feet of schools
  • Dispensaries may only operate within the zones permitted by the local government

Can Licensees Have More Than One Dispensary Location in South Dakota?

Yes. Medical cannabis dispensary licensees can have more than one dispensary location in different municipalities in South Dakota, but they must apply independently for each location in the respective municipality. However, to operate multiple dispensary locations in a municipality, they must obtain approval from the municipality and the DOH.

How Much Does It Cost to Open a Marijuana Dispensary in South Dakota?

The cost of opening a medical marijuana dispensary in South Dakota varies depending on the size of the dispensary and the location. It ranges from $400,000 to over $1,000,000. The following are some of the costs a person may incur to establish a marijuana dispensary in South Dakota:

  • License application fee - $2,500
  • Local government certification fee - ranges from $5,000 to $50,000, depending on the municipality
  • Cost of leasing a dispensing space - Depends on size and location, usually between $40,000 and $100,000 annually
  • Employee salaries - About $300,000 per annum
  • Security, software, and hardware costs - An average of $60,000 per annum
  • Marketing expenses - $50,000
  • Inventory costs - Depends on the dispensing facility size and stock size, but the average is $1,500 per pound of cannabis products
  • Tax - Depends on sales and municipality

Do You Need an Insurance Policy for a Cannabis Dispensary in South Dakota?

South Dakota does not mandate cannabis dispensaries to have insurance coverage. However, a prospective cannabis dispensary can get the following insurance policies to protect their investment:

  • General liability insurance: This protects against errors and omissions by the dispensary or its employees. It also covers property damages or bodily injuries that may occur on the dispensary premises
  • Workers compensation insurance - It covers wages and medical expenses for employees who sustain injuries or become ill on the job
  • Commercial auto insurance - This insurance covers liabilities associated with business vehicles, such as accidents and damages
  • Product liability insurance - This covers legal claims due to injury or harm caused by marijuana products purchased from the dispensary
  • Commercial property insurance - It protects the dispensary’s assets against damages or loss due to theft, natural disasters, or fires
  • Environmental liability insurance - It covers the cost of mending damages done to the environment due to the use of chemicals and other substances by the dispensary

Factors that may determine medical marijuana dispensaries’ insurance premiums in South Dakota include:

  • Coverage
  • Dispensary location
  • Security measures employed
  • Claims history
  • Business experience
  • Dispensary size and revenue
  • Employee training and safety protocols
  • Policy limits
  • Compliance with regulations

How to Get a Grant to Open a Dispensary in South Dakota

Getting funds from commercial banks to fund a cannabis dispensary is difficult due to the illegal status of marijuana at the federal level. However, it is still possible to raise funds to open a cannabis dispensary in South Dakota. The following are a few ways to raise capital to open a medical marijuana dispensary in the state:

  • Self-funding - The easiest source of raising funds for opening a cannabis dispensary in South Dakota is self-funding. Owners use their personal savings to fund the opening of the dispensary and retain full control of the business
  • Friends and family - Seeking investment or loans from family members and friends is another way to source funding for a cannabis dispensary. The terms are often less stringent. However, there should be formal agreements between parties
  • Angel investors - Persons willing to fund the cannabis dispensary for equities in the business
  • Partners - Established marijuana companies or other professionals can be partnered with to provide funding in exchange for shares in the dispensary
  • Equipment financing - The loan is given to purchase expensive equipment for the dispensary. The equipment purchased is used as collateral for the loan
  • Cannabis incubators and accelerators - Some cannabis-focused incubators and accelerators provide funds and resources to marijuana dispensaries in exchange for equity
  • Cannabis business loans - Some financial institutions, especially credit unions, offer loans at favorable conditions for cannabis dispensaries
  • Crowdfunding - Prospective dispensary owners in South Dakota can take advantage of crowdfunding platforms to raise funds for opening their dispensaries from a large number of investors
  • Purchase order financing - Funds are borrowed against already placed orders and are repaid after customers make their payments
  • Hybrid financing - A combination of multiple sources of funding to meet the dispensary’s funding needs

Does South Dakota Have a Social Equity Program for Cannabis Dispensaries?

No, South Dakota does not have a social equity program for marijuana businesses.

Does South Dakota Tax Marijuana Dispensaries?

South Dakota cannabis dispensaries are required to pay a 4.5% sales tax for every medical marijuana sold to the South Dakota Department of Revenue (DOR). They also pay up to 2% municipal tax to the local governments. There is an additional 1% tax for cannabis-infused products such as cookies, beverages, and cupcakes.

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