What this page covers

• Realistic NY monthly burn examples
• Inventory reinvestment pressure
• 280E tax reserve planning
• Payroll and insurance buffers
• Seasonal sales swings
• The 3-month reserve rule
• Underfunding red flags

What Working Capital Actually Means

Working capital is the cash cushion that allows you to:

• Make payroll on time
• Pay vendors within 30 days
• Cover tax payments
• Absorb slow sales months
• Survive operational surprises

It is not startup capital.
It is not profit.
It is survival liquidity.

Step 1: Calculate a Realistic Monthly Burn Rate

Below is a realistic mid-volume NY dispensary example.

Example: Mid-Size NY Dispensary (Suburban or Outer Borough)

Payroll
• 1 General Manager: $85,000/year
• 1 Assistant Manager: $65,000/year
• 8 Budtenders averaging $20/hour
• 2 Inventory/Back-of-house staff

Monthly payroll (including payroll taxes):
≈ $240,000 – $300,000 depending on scheduling

Rent
• $70,000 – $110,000 per month depending on location and size

Insurance
• $18,000 – $30,000 annually
• Monthly equivalent: $1,500 – $2,500

Utilities + Security + Software
• $25,000 – $40,000 per month

Realistic Monthly Fixed Burn

Most mid-size NY dispensaries fall between:

$350,000 – $500,000 per month

High-volume NYC stores often exceed that.

This is the number you must pay even if sales drop.

Step 2: Inventory Reinvestment Is the Hidden Cash Drain

Cannabis retail is inventory-heavy.

If your gross margin averages 40–45%, that means:

You reinvest roughly 55–60% of revenue back into product.

Example:

Monthly revenue: $1,200,000
COGS at 58%: ≈ $696,000

That $696,000 must be repurchased to maintain stock levels.

Inventory is not discretionary spending.
It is required reinvestment.

Working capital must support this cycle.

Step 3: Build a 280E Tax Reserve

Because cannabis remains federally illegal, Internal Revenue Code §280E prevents deducting most operating expenses.

This means:

• Taxable income appears inflated
• Effective tax burden is higher
• Quarterly payments can shock cash flow

Many NY operators reserve:

25–35% of taxable income.

Example:

Quarterly taxable income: $300,000
Reserve at 30%: $90,000

If you do not reserve monthly, this becomes a cash crisis.

Step 4: Payroll and Insurance Buffers

Payroll must be paid:

• Every two weeks
• Regardless of sales swings

Insurance can:

• Increase after claims
• Require annual lump-sum payments
• Be adjusted after underwriting review

You need buffer liquidity to cover:

• Premium renewals
• Unexpected overtime
• Compliance costs

Operating without buffer forces emergency borrowing.

Step 5: Plan for Seasonal Volatility

NY dispensaries experience:

• Strong holiday spikes
• Post-holiday slowdowns
• Summer dips
• Regulatory pauses

Sales can decline 15–25% during slower periods.

If your burn is $450,000 and revenue dips by 20%, your margin cushion shrinks fast.

Working capital must absorb these swings.

The 3-Month Reserve Rule

A widely used stability benchmark:

Three months of fixed burn in cash.

Using a realistic example:

Monthly burn: $450,000
Three months: $1,350,000

That does not include full inventory value.

It is a survival cushion.

Operators with less than one month of burn are operating under stress.

Full Working Capital Example (Realistic Mid-Volume Store)

Monthly burn: $450,000
Monthly inventory reinvestment: $700,000
Quarterly tax reserve: $90,000

Recommended liquidity target:

• 3 months burn = $1.35M
• 1 month inventory cushion = $700K
• Tax reserve = $90K

Total working capital target ≈ $2.14 million

Many operators open with far less.

Why Growth Requires More Capital

When revenue increases:

• Inventory purchases increase
• Payroll grows
• Tax exposure increases

Growth consumes liquidity before it generates free cash.

Under-capitalized growth is one of the most common causes of dispensary distress.

Underfunding Red Flags

• You rely on daily deposits to cover payroll
• You delay vendor payments
• You reduce inventory depth to conserve cash
• You skip tax reserves
• You increase discounting to generate short-term cash
• You fear insurance renewal timing

These are liquidity warning signals.

Simple Formula You Can Use

Working Capital Target =

(3 × Monthly Fixed Burn)

• 1 Month of Inventory Reinvestment
• Current Tax Reserve

Increase that number if:

• You are expanding
• You are highly discount-driven
• You carry slow-moving inventory
• You operate in a high-rent zone

FAQ

Is this number really that high?

For mid-volume NY stores, yes. Cannabis retail is capital-intensive.

What if I cannot raise that much?

Then control inventory tightly, slow growth, and build reserves intentionally.

Does 280E increase working capital needs?

Yes. It increases effective tax burden and reduces retained cash.

Source Material

• What is IRS 280E? 
• Basics of Cannabis Accounting and Tax for New York State Operators