It seems like nearly every day a report comes out showing huge cannabis dispensary sales numbers from one jurisdiction or another. Dispensaries collectively generate a lot of revenue. In just the United States alone, legal cannabis dispensaries have generated over $10 billion since 2014.
Out of the three legalized nations (Uruguay, Canada, and Malta) only Canada has storefront dispensaries. Uruguay sells cannabis via pharmacies and clubs, and Malta will only have cannabis clubs when it eventually fully implements its recently-passed legalization law. More countries are expected to legalize cannabis for adult use in 2022, with at least one of them (Germany) expected to include cannabis dispensaries in its legalization model.
The United States is home to the most cannabis dispensaries on earth, with more opening up virtually every day as the legal cannabis industry continues to spread across the nation. On just April 20, 2021, legal U.S. dispensaries sold over $100 million worth of legal cannabis products. With all of that money flying around, one would assume that cannabis dispensaries are very profitable. However, that is not necessarily always the case.
Similarities Between The Restaurant Industry And Cannabis
Many people are curious as to whether or not cannabis dispensaries are profitable for various reasons. Maybe they want to open one themselves, or maybe they are just curious. Regardless, it’s important for people to realize that just because they spend a lot of money at a dispensary doesn’t mean that every one of them is profitable.
Think of dispensaries from a similar perspective that you would restaurants. The restaurant industry in the U.S. is estimated to be worth over $283 billion. That’s obviously an enormous figure. However, that figure is split up among every restaurant in the U.S., with some restaurant owners making considerably more money compared to others. Dispensaries are the same way in that regard. Just as with any industry, there are winners and losers when it comes to cannabis dispensaries, with some bringing in huge profits and others operating on the verge of bankruptcy.
Cannabis Industry Regulations Limit Profitability
The legal cannabis industry is more regulated than almost any other legal industry on planet earth. Nearly every rule and regulation adds to the cost of doing business for cannabis dispensaries, and in turn, cuts into the profit margin. Licenses in many jurisdictions are limited, which drives up the cost of obtaining a cannabis dispensary license. Dispensaries are often limited in where they can be located, how they can advertise, and many other things. It all combines to limit dispensary profitability.
280E Makes It Worse
The current federal tax code is extremely unfavorable to cannabis dispensaries, as well as other cannabis businesses that ‘touch the plant.’ Below is a great explanation of what 280E is from our friends at the National Cannabis Industry Association:
Section 280E of the Internal Revenue Code forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act. The IRS has subsequently applied Section 280E to state-legal cannabis businesses, since cannabis is still a Schedule I substance.
According to the National Cannabis Industry Association’s white paper on 280E, cannabis dispensaries often have to pay a tax burden that is as much as 70% higher than other businesses. That is obviously terrible, but if there is one silver lining it’s that once 280E reform is finally achieved, it will boost some dispensary’s profits by as much as 70% essentially overnight.