Deseret Wellness is a Utah medical cannabis pharmacy based in Provo. They also have a Park City location as well. By all accounts, the company is doing very well in a state that is among the most restrictive with its medical cannabis program. Yet Deseret Wellness is the exception to the rule. Across the country, plenty of cannabis businesses never make it past the first year.
Starting a new cannabis business does not guarantee success. That’s hard to believe in an industry that employed more than 420,000 people at the start of 2022. Even the fact that the industry produces tens of billions of dollars in annual revenues doesn’t guarantee that every new cannabis business will do well.
The cannabis industry is no different than any other in terms of what it takes to succeed. But unfortunately, business owners in the cannabis space have a few things working against them; things that do not really apply to most other industries.
Restrictive State Laws
The first thing cannabis business owners have to contend with are restrictive state laws. As previously mentioned, Utah is very restrictive; regulators limit the number of licenses they issue. Medical cannabis products are subject to taxation. Every business owner has to pay for a license just to operate, as do qualified medical providers who want to be able to recommend cannabis to patients.
Making things worse are federal laws still rooted in the idea of cannabis being a Schedule I controlled substance. States can control cannabis within their borders, but they have no control over interstate commerce. Therefore, legal cannabis business owners cannot branch out across state lines. This limits their ability to grow and expand.
Taxes and Fees
Perhaps the biggest challenge faced by legal cannabis business owners is financial. It is related to taxes and fees which, in any industry, can be stifling. High taxation and excessive fees are common to the cannabis industry. Lawmakers begin dreaming of how much tax revenue they can collect and find they cannot resist the urge. Every time they need to increase revenue, they hike existing taxes even higher.
The fees associated with running a cannabis business are not cheap either. Growers and processors can spend thousands of dollars annually on licensing. Then there are the administrative fees that go along with filing applications, getting permits, and so forth.
The Black Market
Finally, legitimate cannabis businesses constantly face unfair competition from the black market. More often than not, they come out on the losing end. It is simple economics.
If you are a cannabis user, don’t you try to get the best possible price on whatever it is you buy? Of course you do. You don’t want to pay more than is necessary for cannabis flower, vape cartridges, tinctures, gummies, etc. If all other things are equal between sellers, you are going to go with the one offering the lower price. This is the reality of the legal cannabis industry.
Illegal growers and distributors have an advantage in lower costs. Those lower costs are realized by not paying fees or taxes. Being free of such financial obligations gives illegal operators more room for offering lower prices than their legal counterparts, and it pays off. Lower prices all the way up the supply chain ultimately mean lower prices for retail customers.
If you are looking to start a new cannabis business, you are probably excited by what appears to be continual upward growth. But beware: just starting a cannabis business doesn’t guarantee you will be successful. You need a lot more than a robust market to support your dreams.
