One of the primary challenges facing the cannabis dispensary model is its lack of diversification. Unlike other consumer packaged goods categories, such as food, beverages, or personal care products, cannabis is confined to a store sales approach for one singular product: cannabis. This is due to the industry’s unique characteristics and complicated rules and regulations further hindered by unfavorable taxation conditions. This limited distribution model severely limits the potential customer base and, as a result, inhibits the industry’s growth potential. By relying solely on a dedicated and limited number of dispensaries, the cannabis industry fails to tap into the vast consumer reach and enormous infrastructure of established retailers.

Consumer Accessibility

The singular-store approach of cannabis dispensaries presents a significant barrier to broad consumer accessibility. These dispensaries are typically located in specific, often less desirable regions or neighborhoods, limiting access for a broad range of potential customers. This lack of convenience hinders the industry’s ability to cater to a broader, often more conservative demographic and maximize its market potential. While a few cannabis delivery services in metropolitan areas are trying to overcome these limitations, these services have to deal with other significant obstacles limiting their reach and viability.

Economic Viability

The sustainability of any business model depends on its economic viability. Cannabis dispensaries, while currently profitable in many regions, face significant challenges in the long run. Dispensaries’ limited audience and location-specific nature may lead to concentration in certain areas, resulting in reduced profitability and increased competition, while other areas are underserved. Moreover, the high operational costs associated with running a dispensary, such as security, compliance, and licensing, further strain the economic sustainability of the singular store approach.

Another significant concern for economic viability is the high theft rate at dedicated cannabis dispensaries. Due to the nature of their business, cannabis dispensaries often become targets for theft and illegal activities. The valuable inventory of cannabis products and the cash-based nature of many dispensaries make these establishments vulnerable to criminal activity. Dispensaries must make significant investments in expensive security measures, including security staff, surveillance systems, alarms, and secure storage, to prioritize the safety and security of their staff and customers. Even one of the pioneers in the industry and Marijuana multistate operator, MedMen, abruptly closed stores last week in Emeryville in the Bay Area and San Jose in the Silicon Valley. and another store closure in West Hollywood.

The cannabis industry operates under a complex and ever-evolving regulatory framework. As the industry matures, regulations will likely become more standardized and stringent. This regulatory landscape poses additional challenges for cannabis dispensaries, as compliance requirements and operational restrictions may increase over time and require a qualified management team. Mainstream retailers, such as Walgreens and other similar retailers, are already well-equipped to navigate and comply with evolving regulations, making their stores more accessible and attractive options for cannabis sales.

Given the challenges the current cannabis dispensary model faces, it seems plausible to us to envision a future where cannabis will be sold at a wide variety of mainstream retailers. These retailers have experienced management used to comply with complicated rules and regulations for the goods they already sell and have a well-established presence, extensive distribution networks, and a loyal customer base. Integrating cannabis into mainstream retail would not only enhance convenient and safe accessibility for consumers but would undoubtedly provide a more sustainable business model for the industry. By leveraging the existing infrastructure of large retailers, the cannabis industry can tap into a much broader customer base and benefit from improving economies of scale.

While cannabis dispensaries have played a crucial role in the initial stages of the legalized cannabis industry, their long-term sustainability in its current form seems questionable. The singular store approach and limited audience of the dispensary model restrict consumer accessibility and hinder the industry’s growth potential. As the industry matures, we believe it is reasonable to expect that cannabis will eventually be sold at most mainstream retailers, leveraging their established infrastructure and extensive reach. Integrating cannabis into mainstream retail would also further eliminate grey and black-market sales and result in increasing efficacy and safety for a product that continues to show broader acceptance and increasing demand by a wider range of the population.

Rainer Poertner, Editor
Dynamic Market Concepts
rpoertner@dynamicmarketconcepts.com

If you want to follow other companies that we cover with in-depth articles and research reports,
go to www.stockwatchindex.com or our research site at www.swiresearch.com.

Please feel free to redistribute to your friends and colleagues.
See us on Social Media.

https://www.facebook.com/StockWatchIndex