Our beloved plant’s medicinal qualities are the origin of its state-by-state legalization. Historically, the origins of medical cannabis can be traced back to 2900 BC, with Chinese Emperor Fu Hsi referring to it as the “yin and yang” of multi-purpose medicine. Today, medicinal cannabis sales have swept the United States–with 39 states allowing medical cannabis sales and 19 of those including adult use. We know one inevitable trend: medicinal sales tend to open the door for future recreational sales. With retailers reporting three to four times the sales volume and larger basket sizes when they transition to recreational, expanding your customer base means earning more revenue.
Are you ready to increase your dispensary’s reach to include adult-use customers? We’ve gathered some tips for your cannabis business to transition from medical to recreational.
You’ll learn what to expect with these five core topics:
Your business will require separate recreational licensing through an expensive and time-consuming application, but it has proven worth the effort. The first step is to familiarize yourself with your local regulations. Your business location should be zoned appropriately away from minors. Some states require different physical locations to sell medical and recreational products to customers.
You’ll want to confirm that recreational licenses are available in your area, and rest assured, your medical business could likely get your priority here. Regulators like to ensure that they grant rights to trusted operations that comply with the law.
Investigate any municipal stipulations with your local cannabis control board. Check if your dispensary needs a separate transportation license to transfer products between your facilities or from the vendor to your store. Traveling with cannabis involves additional compliance rules, transparency, and tracking. Will you need other licenses, like those permitting delivery or curbside transportation to customers when you transition from medical to recreational?
Regulators always want to monitor sales, advertising, and purchasing limits. Every customer must have their ID verified to prove they’re of age to buy cannabis, and each customer has daily product limits, which can change over time. Legislators and policymakers want to control how people can access cannabinoids. Abrupt changes may occur, especially with product testing and labeling. If and when this happens, retailers may need to send products off for retesting or relabeling.
The pioneer state that legalized medicinal cannabis use was California in 1996. With a clouded legal landscape hanging over Prop 215, actual medical patients could grow as much medicine as needed. Now, the number of plants a medical or recreational customer can grow is significantly limited. This is similar in states like Oregon, where medical patients can grow six mature plants, whereas recreational users can only produce four.
For California, significant rules changed in 2016 when lawmakers approved recreational sales, but for most recreational states, the ruleset can differ frequently. As a retailer, you should be careful to cultivate a relationship with your state regulators and stay up-to-speed on these nuances. Things in cannabis can change at the drop of a dab.
Colorado, which started allowing medical sales in 2012, streamlined their recreational regulations, making it easier for some businesses only to serve recreational clients. The state required each type of sale to take place in a separate location, doubling operating costs. Massachusetts allowed both types of sales to coexist under one roof–making it a wise move for retailers to branch out to adult-use there from day one. Moving from a successful medical operation to a recreational one required manufacturing adjustments (recreational edibles had to be significantly less potent) and technology changes.
Regardless of location, one thing rings true: you’ll need more inventory for the ever-expanding recreational demand. Since recreational sales have more stringent potency caps, you may encounter issues within the supply chain of a blossoming new market. Cannabis plant growth can take 2-3 months. Edible manufacturing and oil extraction can take much longer. Other states have struggled to keep up their supply in the face of increased demand. Luckily, some regulators (like in New York, for example) have started to address this by offering growing and manufacturing licenses before retail licenses.
Your business must always meet the consumption caps, or it could get in hot water for breaking compliance. As a best practice, medical inventory should be stored separately from the recreational inventory to avoid confusion.
Research shows that you may need to double your inventory, but we suggest you start slow, so you’re not over-manufacturing or over-stocking. Study cannabis sales data in your location and demographic to know what products (typically flower is a popular category) you need to double down on. Remember that cannabis products do expire, and you want your business to be known for freshness.
The most significant transition from medical to recreational is entering your products into a state-appointed seed-to-sale tracking system. Seed-to-sale tracking software allows state regulators to track each SKU from the plant’s life cycle to a transaction. Your business has an average of 10 days to begin inputting inventory as soon as you receive your traceability ID. Choose a point-of-sale solution that integrates with your seed-to-sale software to avoid duplicating manual work.
Once you’ve secured your license and thoughtfully hired new team members, ensure they are trained on all compliance aspects. They should be familiar with the seed-to-sale tracking system, how your POS reports inventory and sales to it, how to document deliveries if applicable, how to return permitted items (like inactive vaporizers), and more.
Recreational consumers typically try new products and consumption methods, maybe for the first time. Train your budtenders on explaining different cannabinoids, different consumption methods, and their corresponding activation time, and be able to touch on terpenes and their effects. After all, cannabis products aren’t one-size-fits-all. Some customers may want a cerebral impact for a specific reason (like to enhance creativity), and some may wish for a physical feeling (like to relax). Ensure that your staff members are ready to listen and provide a more in-depth customer experience than the legacy market would offer.
As Flowhub’s POS notes, you’ll need your staff to carefully enter and maintain customer profiles. Document medical patients’ med card numbers and expiration dates. Recreational customers should be marked as “rec” and sold lower potency products.
Retailers joining the adult-use market should be prepared for additional banking and payment considerations. In your recreational license application, you’ll need to show adequate proof of capital from trackable and approved sources. Be prepared to provide to-the-penny information about your investors. To stock more inventory compliantly, you’ll need to track every incoming and outgoing payment in detail. Depending on your state, you might need up to $80,000 liquidity for the new licensing. You’ll need a cashless payment option to retain new recreational customers and keep basket sizes growing by up to 25%.
Luckily, we’re here to help with the nitty-gritty of cannabis business finances. We’ve offered compliant bank accounts since 2017 to make it easy to track the sources of your income, monitor cash flow, and securely manage your cash. And if you’re needing help with retail or wholesale payments, we’ve got you covered too!
Here are some of the benefits of Abaca Payments:
Obtaining a recreational license can require extra expenses and timing considerations, but most retailers have found great success when transitioning their business from medical to recreational. Old and new markets show rapid changes in rules and regulations. Supply and demand may be tricky, but regulators continue to improve timelines. Seed-to-sale tracking is vital to success in the recreational market. And finally, get your staff and your finances ready for the new landscape.
Ready to learn more about how Abaca can help make the transition from medical to recreational easier? Contact one of our financial consultants today.
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