Surviving the cannabis industry in the coming year
It is an exciting time for the cannabis industry. Globally, the industry is predicted to grow to nearly $150 billion by 2031, sustaining a 20% plus CAGR year over year. Within the U.S., 24 states have legalized the sale of recreational cannabis, with Hawaii and Pennsylvania expected to join the ranks in 2025. Perhaps most exciting of all is the potential reclassification of cannabis as a Schedule III drug, with a DEA hearing scheduled for early 2025.
Despite the promising growth of the legal cannabis industry, numerous challenges threaten the survival of cannabis-related businesses (CRBs), especially dispensaries in 2025. These operational challenges include evolving compliance and legal requirements, the difficulty of securing and maintaining a license in limited-license states, the continued regulations preventing CRBs from conducting business with financial institutions, and increased competition from mergers and acquisitions.
This post explores these challenges and discusses the strategies CRBs must take to survive the threats to the cannabis industry in 2025 and beyond.
Keeping track of regulations and compliance changes
Compliance rules tend to change with little warning, especially in new recreational states, as regulatory bodies learn about potential consumer threats. For example, many states have specific packaging requirements—such as the size of the warning label or the colors that can be used—that can shift with little warning, leaving dispensaries with an inventory of unsellable products.
However, in 2025, the cannabis industry may see some compliance shifts that will help CRBs survive in the volatile landscape. In January or February, the federal government will review the classification of cannabis, potentially downgrading it from Schedule I to Schedule III. From an operational standpoint, this would be a huge win as it would mean that CRBs would no longer have to comply with tax code 280E, which prevents the cannabis industry from deducting taxable expenses (due to the federal illegality of cannabis) like any other business.
Additionally, if Congress were to pass the SAFE and SAFER banking acts, it could shield CRBs from federal prosecution and finally allow the cannabis industry access to standard financial services such as bank accounts, loans, and mainstream insurance products (although working with a CRB-experienced provider will still be the best practice).
Getting a license in a state or area with a limited number of licenses
Applying for a dispensary license, especially in a new recreational market, can be an enormous headache. Some states limit the number of licenses awarded yearly, with many prioritizing social equity licenses. Additionally, dispensaries must obey local zoning laws, which can restrict where they can set up shop. For example, Illinois requires that dispensaries be at least 1,500 feet away from a school and in a commercially zoned district.
To have any hope of approval, a dispensary must have all necessary business documentation and licensing secured or in process at the time of application. Many states only offer a set window to accept new applications and renewals.
Limited access to financial institutions
The most significant obstacle for CRBs is the cash business requirement. Because of cannabis’s federal status, dispensaries and other CRBs do not have access to loans, insurance from large carriers, or other essential financial services such as bank accounts. Many banks and insurance firms simply refuse to take the risk of working with a CRB. Insurance carriers that do work with dispensaries often lack experience in the space or overcharge their clients based on an inflated risk model.
Also read: Four Critical Mistakes Dispensaries Make When Purchasing Cannabis Business Insurance
Increased competition
Dispensaries face increased competition from several sources. The unregulated and illicit black market trade of cannabis persists in states with recreational markets. Illegal flower can force the price of legal cannabis products down in order to compete. Additionally, the numerous mergers and acquisitions in recent years have formed massive new multi-state operator (MSO) companies that make it harder for craft growers and boutique dispensaries to stake a claim in the market.
Additionally, investors from outside cannabis, chiefly in the alcohol, tobacco, and pharma industries, have been making their own moves, buying up smaller dispensaries and cultivators to launch their versions of cannabis-infused products and seemingly to prepare for the day that cannabis prohibition ends federally in the U.S.
Surviving the uncertainties of the cannabis industry in 2025
For dispensaries, many of these market risks are not new. But the levels of uncertainty and competition are. Dispensaries must stay informed of compliance changes, scale responsibly, stay compliant, and seek appropriate insurance coverage to mitigate the inherent risks associated with cannabis business operations.
Dispensaries need an insurance team that understands their unique needs and market risks. McGowan Wholesale’s Trichrome Dispensary Insurance program was designed by industry-experienced professionals with the dispensary in mind.
The program features:
- Fast processing of applications (within 72 hours or less).
- Convenient online submission portal for easy transactions.
- Streamlined application process.
- Nationwide availability.
- Thorough coverage options and additional benefits.
- Precise and competitive pricing (managed in-house for ratings and underwriting).
- Proactive loss prevention and risk management through unique and proprietary programs.
Get in touch to learn more.
