May 17, 2022

8 things to prepare for when transitioning from medical to recreational cannabis sales

May 17, 2022

Accelerated by expanding legalization and a flood of capital from investors, recreational cannabis is now one of the fastest-growing industries in the country. In just a few years, we've watched cannabis make its way into the mainstream; sold and regulated plant-by-plant, from seed to sale.

Today, recreational sales of flower, edibles, vaporizers, and other cannabis products are legal in 21 states, as well as Washington, D.C. Medical sales, on the other hand, are far more widespread, extending across 37 states (and D.C). Now, with fresh business opportunities in New Jersey, New York, Connecticut, Rhode Island, and others, we're here to help you prepare for adult-use cannabis sales in your local market.

Dutchie has helped dispensaries across the country make the jump from medical to recreational, and we’ve witnessed firsthand the challenges associated with this
transition. Drawing from our conversations with dispensary owners and store managers, here are the most common frustrations felt by retailers on their journey to recreational sales:

  • Obtaining a recreational license is challenging and expensive.
  • There are constantly changing regulations to comply with.
  • New and costly expenses emerge that don't apply to medical establishments.

1. Licensing challenges 

The majority of owners and managers of cannabis retailers in transitioned states reported that obtaining a recreational license was not nearly as simple as they’d thought. When a state approves the recreational use of cannabis, licensing requirements are the first to change. This means that store owners not only have to apply for an expensive license, they also have to catalog each and every plant in their facility.

There are several conditions that must be met in order for medical retailers to get recreational licenses. If you can satisfy the following requirements, you’ll be well on your way:

  • You’re ready to shell out for additional expenses. We’ve seen stores in some states spend upwards of $80,000 on licensing alone—and in most cases, this doesn’t include the renewal fees. If securing this amount feels daunting or impossible, you may have difficulties getting a recreational license.
  • You can show proof of capital from clean, trackable sources. Unsurprisingly, states don’t want the unregulated market involved in the cannabis industry. Local cannabis commissions and regulators may want to know where every penny comes from—especially if you’re taking a fundraising approach. You may need to provide absolute transparency around who your investors are (and how much they’re giving you).
  • You’re open to moving from nonprofit to for-profit. Some medical cannabis retailers function as nonprofits, but selling recreationally means making the transition from nonprofit to for-profit. In this case, these retailers will need a functioning business license and articles of incorporation.

Additional licenses to consider:

  • Transportation licenses. Moving the product legally is equally important when assessing the licenses you’ll need. Check your local regulations to see if you also need a license to move new recreational products between your facilities or from the processor to your store.
  • Ordering types licenses or add-ons. Recreational customers love convenience, so for your dispensary to be successful, you may want to check out what ordering types (curbside or delivery) are available in your area and make sure you are licensed—or work with a courier who is—to offer those options as well.

2. Cataloging all existing inventory for seed-to-sale tracking

When a state introduces recreational cannabis legislation, they may introduce new seed-to-sale systems (like METRC), which track each and every cannabis plant that is grown, goes to market, and is then sold to either a recreational or medical consumer. You also may be in a market that already has seed-to-sale tracking.

Retailers will need to catalog all of their existing inventory when they obtain their license, but this can’t happen immediately. We’ve had store owners and managers call us and say, “I have my traceability ID, let’s get going.” However, retailers will need to take the time to carefully implement this new regulatory process.

In most states, store owners are given a period of 10 days to catalog everything they have. After these 10 days, store owners will only be able to buy and sell cannabis that is tracked by the state. The timeline of this process is important so you don’t lose out on any already purchased inventory.

3. A lot more rules and regulations—like, a lot

We can’t emphasize this one enough. Once recreational cannabis is legalized in a given state, expect new rules to be introduced. These rules dictate how much product can be sold, how retailers can advertise, and how compliance must be recorded.

Stricter cannabis regulations have emerged in every state with legalized recreational sales, as legislators and policymakers want to control how people can access the plant and its cannabinoids. Testing and labeling rules often change for recreational cannabis launches. This can lead to retailers either needing to send products off for retesting or relabeling products—some states even require both.

Additionally, you may need to take costly and logistically complicated steps to sell both medical and recreational cannabis. Some states require separate licenses, inventory management, or even different physical locations to engage in both types of sales.

The takeaway: You’re going to see a lot of laws that weren’t in place before. 

4. Supply and demand issues

Because all recreational cannabis will need to be tracked via seed-to-sale state systems, you’re likely to encounter supply issues. Growers in most states will have to cultivate new plants that are state-compliant, which could create a delay in the supply of new products to retailers.

The growing period is typically two or three months, but it can make a huge difference in product availability. When this transition happened in other states, stores struggled to keep up their supply in the face of increased demand.

Retailers can expect a 10x in traffic to their store shortly after recreational sales are allowed. This is phenomenal for retailers, but it can create headaches if they are low on supply. In short, demand will rise significantly in recreational markets, but supply could become the bottleneck in the business.

5. Hiring, onboarding, and educating new staff 

When recreational cannabis sales are implemented, expect an influx of new customers. To accommodate these new customers, you’ll likely need to hire more employees. You’ll also want to offer similar benefits to other businesses so you can attract (and retain) budtenders.

Since cannabis isn't legal at the federal level, it can be tough to get health insurance and direct deposit for employees. Fortunately, credit unions now offer to work with cannabis businesses for an additional fee. Double-check to make sure the fee is reasonable for your location.

As you probably know, workers' compensation insurance is required for retailers to have in place before hiring staff. Dutchie can help you find the right workers’ compensation insurance for your business, and help with other types of cannabis insurance—like general liability, property, product liability, auto (for delivery), etc. Dutchie’s cannabis insurance experts can review that your existing policies are up-to-date with the transition to recreational sales.

Education around compliance is key to managing your larger staff once you’ve hired them. Since you will be catering to both medical and recreational customers, you’ll want your staff to understand the differences in serving them. 

There are two main distinctions between medical and recreational customers:

  1. Customer profiles. Medical patients must be documented according to the medical ID number in their profile. The two customer types must not be confused or it can lead to larger compliance issues that come with steep fines. Keep this information up-to-date since it can change on an annual basis. Another perk of keeping this information verified is that, with the right POS, it will incorporate any tax cuts that your medical patients could receive. Dutchie POS offers separate customer types (both medical and recreational), with assigned allotments for each.
  2. Medical sales limits. Medical patients tend to have higher purchasing limits. For instance, in Oregon, medical patients can purchase up to 8 ounces of flower in a single day whereas recreational patients can only buy 2 full ounces. Another area where this is often important is with edibles, edible limits tend to be bigger or more potent for medicinal purposes. Dutchie POS includes real-time allotment checks to prevent overselling with automated enforcement pop-ups in the register for budtenders.

You may want to confirm that everyone on your team is aware of these differences as well as how selling products can be a different experience for medical patients vs. recreational customers. We’ll get into that more in the customer type section.

6. Ever-changing market regulations

Just as recreational retailers get used to one rule, they’re often blindsided by another. For example, discounting, order limits, delivery areas, and security requirements sometimes change in recreational markets. Retailers will figure out a compliant process that works for their store, only to have the rules refined six months later.

Discounting can often change around market transitions, meaning folks will need to review their existing promotion parameters. As the market fluctuates, order limits are another example of a component that can evolve. Purchase limits can change in regards to potency and size, with new edible potencies being approved by the state every couple of years. Another adjustment we’ve seen is that delivery zones can become flexible based on new city ordinances.

Facility security rules are also very common to change as recreational rules are put into effect. Dispensaries transitioning commonly need to invest in new camera systems, off-site backups, and inspections that will ask them to demonstrate procedures around restricted areas. Continue to check with your state regulator and local or county government authority to ensure you’re always staying compliant.

In short: Be adaptable, responsive, and aware of the ever-changing regulations.

7. An increase in new (and old) expenses

In many ways, a recreational cannabis retailer is just like any other retail establishment. Customers want goods, so they come in and purchase them. But when it comes to a recreational cannabis business vs. a medical store, you can expect a spike in new expenses.

First of all, taxes are higher, and you have to keep careful track of everything you sell. This may mean implementing a retail management platform that helps you automate seed-to-sale reporting, such as Dutchie POS.

Additionally, many states require retailers to have expensive security cameras. The security systems at a recreational cannabis store average $15,000 to be compliant. Consumer delivery may create additional costs, such as company- owned cars or requirements that 2 employees be in the vehicle for delivery. This doesn’t take into account proper signage, safes, or other security measures. 

8. A different type of customer

Medical patients usually see their local cannabis store more like a pharmacy than a liquor store. But when stores switch to recreational, a new type of customer emerges.

Self-proclaimed cannabis connoisseurs may shop based on their own experience —some have even been known to try to work around compliance rules and limits. Others may max out their limits at different shops within the same day; this “workaround” is harder to track, but still technically goes against market regulations.

This isn’t to say that recreational customers are difficult. It’s a reminder that there may be a stark difference between medical customers, who are often educated about the product, and recreational customers, who may have no experience buying cannabis, or may be used to getting their product from the unregulated market.

If you're aware of these challenges, you can market your business in such a way that it thrives in the adult-use market. While it’s not a simple process, it's worth it in the end—and can substantially boost your dispensary’s revenue. That's a win/win for everyone.

Looking for additional resources and best practices for medical establishments?

Download our FREE guide, Transitioning from Medical to Recreational Sales: What Cannabis Retailers Need to Know. You'll learn:

  • The ins-and-outs of obtaining a recreational license
  • How to catalog existing inventory
  • Preparing for seed-to-sale tracking
  • How to meet increased consumer demand
  • The differences (and similarities) between medical and recreational consumers

...and much more. Download the guide today.

About Dutchie

Dutchie is an all-in-one technology platform powering the cannabis industry with Point of Sale, Ecommerce, Payments, and Insurance. Through our technology, we’re helping cannabis businesses start, operate, and grow with confidence. With software that simplifies their operations, our customers can focus on what matters most—bringing the benefits of cannabis safely to consumers.

Request a demo today.

About the author
The Dutchie Squad