Cannabis Dispensaries are Going through the Ringer

The Challenges of Running a Cannabis Dispensary in 2024

Running a cannabis dispensary in 2024 is both rewarding and incredibly challenging. I’ve witnessed firsthand how difficult it has become to navigate the complexities of this rapidly evolving industry through my conversation with dispensary owners, operating as a brand, and seeing the struggle with onboarding new brands with a vision, and to maintain a great team while growing the consumer base steadily. While demand for cannabis continues to grow, so do the barriers that dispensary owners face—from regulatory hurdles to competition and financial constraints. Here’s a closer look at why staying afloat in the cannabis business can feel like an uphill battle. That is not to say we don't have some incredibly successful brands and dispensary chains out there. The innovation in the space is incredible. From the quality of flower and products, the medical benefits we are discovering, and the accessibility we have made for people to cannabis is incredible. Now we just need to fix some things to make the industry more economically manageable, resolving regulatory hurdles, bank accessibility, tax rates, and more. Here are my thoughts.

1. Regulatory Hurdles

One of the biggest obstacles for dispensary owners is the ever-changing landscape of cannabis regulations. Each state has its own set of rules governing licensing, compliance, and product safety, and staying compliant is both costly and time-consuming. On top of that, cannabis remains illegal at the federal level, which means they face challenges that other industries don’t, such as limited access to banking services and heightened scrutiny over financial transactions.

More subsidiaries are becoming available within the banking system for dispensaries to utilize, but these too can be costly due to the risk involved with having an account that is profiting from cannabis products.

Dispensaries have come close to being shut down more than once due to minor compliance oversights, unexpected tax payments that built up over the year, and the constant race to the bottom for price of these products. The costs of complying with tracking systems like METRC, as well as dealing with constant inspections and regulatory fees can add up quickly. It feels like we're walking a tightrope, trying to avoid falling afoul of regulations that could change at any moment.

2. Rising Costs and Slim Profit Margins

Operating a dispensary involves significant overhead costs, including rent, payroll, utilities, and security. On top of that, there’s the infamous 280E tax rule, which prevents cannabis businesses from deducting ordinary business expenses on federal tax returns, leaving us with an outsized tax burden.

Even though cannabis sales are growing, profit margins are shrinking. Between increased competition and the persistent presence of the illicit market, we’re forced to keep prices low to stay competitive. The black market and hemp industry are both straining the legal cannabis market with dispensaries. Compliance tests are few and far between in hemp compared to the rigorous testing processes to get products onto shelves in stores. Sometimes, these tests fail as well and pesticides are found in the products. With this being a factor, it can cause setbacks that can be detrimental to the overall week to week flow. It’s a delicate balance, and more than once, I’ve wondered how long the industry can continue operating at such slim margins.

3. Oversaturation and Fierce Competition

The cannabis industry has experienced explosive growth over the past few years, and with it, a surge in the number of dispensaries. While this might sound like a sign of a healthy market, the truth is that many of them are struggling to stand out. Consumer loyalty is fickle, and many customers are simply looking for the lowest prices, which further erodes our ability to maintain profitability. From what I have seen, its all about the cheapest joint for the day (Often anywhere between $7.00 to $10.00) Promos are always running, meaning you can get a free one or one for under a $1.00.

I often wonder what quality goes into these products even. It is difficult to accept that the process to sell a joint for that cheap is a good one in every single case.

Just recently, a neighboring dispensary that had been open for only a year had to close its doors. They couldn’t compete with the bigger, more established players offering deep discounts and premium marketing. Larger stores can afford overpaying for being the front and center store on Weedmaps’ pay to play system.

Advertisements on Weedmaps can cost $1000’s upon $1000’s for a store in say Santa Rosa. Everyone uses Weedmaps, yet so many dispensary dislike Weedmaps because of how they put dispensaries at odds with one another to gain the attention of consumers.

4. Cash Flow and Financing Struggles

One of the most frustrating challenges faced as dispensary owners is the lack of access to traditional banking and financial services. Because cannabis is still illegal federally, most banks won’t work with them, leaving them to rely heavily on cash transactions. Not only is this inefficient, but it also poses serious security risks.

Elder Creek road for instance in Sacramento, is a huge area for cultivation centers that deal in hundreds of thousands of dollars on hand. In the past three years, I have heard of two places in particular that a van of robbers drove to armed and with masks. They came from Oakland, knowing specifically where they were going to hit. Natura was one of them. (Now Closed) They didn’t have armed guards and they broke in and stole over $250,000 in product and money.

Getting loans or lines of credit to grow the business is another major hurdle. they’ve had to rely on private lenders or investors, who often demand high-interest rates or a large share of equity. Without these financial lifelines, many small dispensaries are constantly at risk of running out of cash.

5. Customer Acquisition and Retention

Marketing cannabis is a double-edged sword. While it’s crucial for attracting new customers and building loyalty, the advertising restrictions in place for cannabis businesses are some of the most stringent around. They can’t use traditional marketing channels like Google Ads or Facebook to promote products, which limits the ability to reach new customers.

I’ve heard of them trying everything from loyalty programs to community engagement events, but it’s tough to make a significant impact. Competing against large, multi-state operators with massive marketing budgets makes customer acquisition even more difficult.

6. Coping with the Illicit Market

The black market is still alive and well in the cannabis industry, and it continues to be a thorn in the side of legal dispensaries. Unlicensed sellers can offer cannabis at lower prices because they aren’t burdened with the same taxes, fees, and compliance costs. As a result, they can undercut our prices and lure customers away from legitimate dispensaries. Not to say the hemp industry is all bad, but the black market and hemp often fall in line with one another and even with Gavin Newsom announcing to stop all hep sales in corner liquor and vape shops, how is this really going to be enforced to stop it on a grander scale?

We’ve lost customers to the black market, and it’s frustrating to watch illegal sellers operate with little consequence while people struggle to keep their businesses to stay above board.

7. Future Outlook

Looking ahead, I remain cautiously optimistic about the future of cannabis dispensaries, but I know that many may not survive the next few years. The industry is at a crossroads—either we see changes in regulation, tax relief, and better access to banking, or many small businesses like mine will be forced to close their doors.

It’s clear that adaptability and resilience will be key for survival. Persistence is vital, but we also need meaningful support from policymakers, industry leaders, and consumers if we want to continue serving our communities.

I’ll get off the soap box now

I know I ranted here and of course there are still silver linings, but the point I am making is that it could be better. Not just that it could be better, but more importantly, it needs to be fixed now and I don’t understand why the industry is set up this way. Cannabis is legal in 30+ states and the loopholes, the shortcuts, and the lack of punishment for other industries selling cannabis outside of dispensaries is honestly absurd.

As we look to the future, it’s clear that greater support and reform are needed to ensure the survival of small, independent dispensaries.