3 Reasons Why Weed Is More Expensive in Dispensaries
Legal weed has garnered a reputation for costing more than illegal cannabis, but the reality still is that "you get what you pay for." Understanding the costs of working in the cannabis industry and other factors that influence pricing will give marijuana enthusiasts a whole new appreciation for legal weed.
Reason #1: Marijuana Is Still a Controlled Substance at the Federal Level
The primary reason that weed is expensive is that marijuana remains federally illegal. This means that cannabis can't be transported across state lines from states that have an ideal climate for growing cannabis outdoors (75 to 86 ℉) to states with climates that are particularly hot—like Arizona—or cold—like Washington. When the climate isn’t ideal for cultivation, growers have to produce marijuana indoors, which costs significantly more than growing marijuana outdoors.
High Payment Processing Costs
Another consequence of cannabis being federally illegal is that most payment processors and financial institutions can’t issue regular merchant accounts to dispensaries as they are considered too “high risk.”
What does this mean in terms of pricing? Instead of using popular card processing solutions like Visa, MasterCard, and PayPal, dispensaries may need to limit their sales to cash or build their own payment gateways for a cost of $200,000 or more. When they can manage to get approval for a merchant account, these tend to be high-risk merchant accounts with significantly higher fees.
Complex Regulations
Currently, each state that has a medical marijuana or recreational cannabis program sets its own laws regarding cultivation, transportation, processing, testing, packaging, labeling, marketing, selling, and disposing of cannabis products, and these regulations frequently change. While it varies between states, cannabis is generally more highly regulated and subject to higher tax rates than alcohol and tobacco.
Lab Testing
Before packaging and sale, lab testing is essential to ensure that cannabis products are accurately labeled and safe for customers to consume. It’s also required in many states. According to one study, around 76% of topical CBD products sampled in Baltimore, Maryland in 2020 contained either less or more cannabidiol (and THC) than stated on the label. Worse still, some street marijuana has been found to be laced with illegal drugs like fentanyl and methamphetamine, which can be fatal in the case of an overdose. Lab-testing helps to ensure that you’re getting what you pay for with no unwanted surprises.
In Seattle, Washington, lab testing can cost $250 for 8 grams of flower, and every batch must be submitted for testing. When we’re talking about dozens of strains and multiple crops per year, this cost bumps up weed prices significantly. There is an upside to this cost, however: It's much better to pay more for a lab-tested product than to purchase a product that doesn't work, or to end up in the emergency room after buying contaminated marijuana products from unscrupulous dealers.
Packaging Requirements
Once cannabis is tested and approved, it must be placed in packaging that satisfies multiple requirements. For example, Seattle cannabis concentrates need to be sold in packaging that:
Is child-resistant or is made from plastic at least 2 mm thick, heat-sealed without an easy-open tab
Protects the contents from contamination
Does not impart any toxic or harmful substance to the product it contains
Clearly states the name of the manufacturer, the manufacturer’s unified business identification number, and the lot number of the batch
Clearly states all of the substances contained in the product and used at any stage of production or processing
Clearly states the extraction method used, including the names of solvents
Clearly states the levels of THC and CBD
Clearly states the medically and scientifically accurate health and safety risks of consuming marijuana
Displays the “universal symbol” along with several specific warnings
Creating this kind of packaging and updating the packaging and labels according to changing requirements is much more expensive than simply placing some joints in a paper bag as street dealers might typically do. This adds to the final cost to the customer.
Restrictions on Marketing and Advertising
Even in places where dispensaries are allowed to sell cannabis to adults, regulations around marketing can make it hard to get the word out about exactly which products are available. In many states, dispensaries aren't allowed to display images of the cannabis plant in public, so they pay specialized companies to produce ads that allude to cannabis without actually displaying the plant.
As far as online advertising, cannabis companies and dispensaries are barred from using Google Ads and their social media channels are often censored or shut down. The only options are to pay a high monthly premium to advertise on Weedmaps or to invest heavily in search engine optimization (SEO) to boost their organic rankings on Google and Bing. This can also prove expensive because the most popular online cannabis directories charge a fortune for featured listings and there is heavy competition for cannabis-related search terms on Google and other search engines.
Cannabis Waste Disposal
At the end of a cannabis product’s life, it must be disposed of in highly specific ways as a kind of “special waste.” In most states, cannabis companies need to render unused cannabis material "unusable and unrecognizable" before disposal—which requires special equipment—and have to fill out a lot of paperwork to enter every single movement of the cannabis material (from seed to final burial) in the state's track-and-trace system.
High Business Taxes and Licensing Fees at Each Point of the Supply Chain
To pay for all of the close government monitoring, all of the members of the marijuana industry supply chain—growers, processors, transporters, and dispensary owners—are required to pay higher business tax rates than other industries, plus high licensing fees costing $1,000 or more.
Once you start to add up these weed costs—costs that street dealers don't pay—you can start to understand why there's such a significant difference in price between legal and black-market weed.
Reason #2: High Overheads
Government involvement aside, the art of producing high-quality cannabis in itself costs a lot more money than producing inferior "dirt" cannabis. This leads to higher overheads for companies that want to offer a premium experience. Indoor cultivation systems, for example, cost a lot more to set up than outdoor systems because the grower must either purchase or rent:
The building
Grow lights
Fans
Air filtration systems
A growing medium
Instruments that measure temperature, humidity, and light
Indoor grows, however, offer several advantages over outdoor grows:
The grower can control the exact temperature, humidity, and frequencies of light that will lead to the most potent and flavorful cannabis products.
The grower can seal the grow room to prevent pests from entering. This allows cannabis plants to be grown organically without the use of pesticides.
Growing in a controlled environment allows cultivators to produce cannabis all year round rather than producing one major crop between September and November.
Then, when creating cannabis extracts for vaping and dabbing, processors often invest up to half a million dollars on closed CO2 systems that create an extremely pure vape oil. Solvents like butane and propane are much cheaper at the outset but can leave solvent residues in the final product—compromising safety and taste.
Reason #3: High Taxation Rates on Sales
After all of the costs involved in the cannabis supply chain (which are eventually passed down to the customer), states that have legalized adult-use marijuana charge an excise tax or “luxury tax” at the point of sale. Some states, like Arkansas, charge an excisetax as low as 10% on cannabis sales. Washington State, in contrast, charges 37% on top of the retail price. This means that one-eighth of marijuana flower that is advertised for $24 will cost you $32.88 to buy.
Tax revenue from marijuana flower is typically used to fund things like marijuana program enforcement, substance-abuse rehabilitation programs, health services, and public education—all very important causes and definitely good things to support. There is some reprieve, though, for customers with a medical marijuana card. MMJ patients are usually exempt from paying the excise tax.
What Can We Expect in Terms of Dispensary Prices in the Future?
As states continue legalizing cannabis and the industry matures, we can ultimately expect the average price of quality marijuana to go down—although this will depend on whether state governments reduce their taxes and fees.
At the federal level, the removal of marijuana from the Controlled Substances list would lower the price of legal cannabis dramatically, as dispensaries will be able to use regular payment processing and marketing solutions at a far lower cost. Furthermore, the enabling of interstate commerce would lead to prices becoming more standardized around the USA.
While we continue to watch out for developments in local and federal law and educate others about the benefits of marijuana, you can be assured that the price you pay for legal weed isn't simply lining the pockets of dispensary owners or cannabis producers—many of whom are just struggling to stay in the game.
By supporting legal, small boutique producers and dispensaries, you're helping them to avoid being bought out by larger companies or compromising quality for a lower price. At the end of the day, paying more for high-quality dispensary products is an investment in safety, effectiveness, innovation, and continuous product improvement. That ultimately benefits us all!