The Future Of Interstate Cannabis Commerce
By Matthew O'Brien
It’s easy to sell products on a national scale.
While interstate commerce is one of the easiest things for a traditional company to offer – the opposite is true for cannabis companies today.
The Growth Of E-Commerce
Anywhere from 12 to 24 million e-commerce stores exist online in 2022 – with more e-commerce stores being created and added to the worldwide web each day.
Cannabis e-commerce has seen significant growth in North America in the last two years, as many cannabis retail stores were forced to move their operations online.
This growth in cannabis e-commerce has led to Dutchie becoming the most valuable cannabis software company globally — last valued at $3.75 billion USD.
While software solutions like Dutch are moving from state to state with ease, interstate U.S. commerce for plant-touching cannabis businesses is currently not permitted, and likely won’t be until federal legalization occurs in the United States.
How Cannabis Brands Enter Other States
There are zero ways to legally ship high-THC cannabis products across state lines.
Today, CBD companies can ship products across the state lines where a product was produced, however, some hemp-derived CBD companies don’t even ship to all 50 U.S. states, thanks to individual state regulations.
This means cannabis businesses interested in new markets have their work cut out for them before they can ever sell a single product elsewhere.
In some markets, especially medical markets, there are a limited number of licenses available that are allocated to companies when the market initially opens up.
In Missouri, MSOs like Cresco Labs applied for licenses and were denied.
If a company doesn’t get awarded a license during the application period, they likely won’t receive one at all and can’t enter the market until regulations open up, say with federal legalization or adult-use programs.
Low Cost Expansion
For brands, it’s many multiples easier to enter a new market than it is for cannabis cultivators, manufacturers, and dispensaries to expand into new states.
Cannabis brands just (we say the word “just” lightly) have to find a licensed cultivator, manufacturer, and retailer to grow/make and then sell their product.
They don’t have to acquire a license to put their product on shelves in other states.
This is how Wana Brands, one of the industry’s most popular edibles brands, is available in 11 U.S. states and Canada.
You typically won’t find many cultivators, manufacturers, and retailers in as many states as Wana (and other brands) are in.
Wana partners with manufacturers in new states who have licenses. This is a mutually-beneficial relationship between Wana (and other brands) and the manufacturers.
Brand new manufacturers who don’t know many recipes and techniques are able to use the SOPs and recipes from an award-winning brand like Wana, who in turn gets to bring their recipes to a new market & capture new sales.
The Benefits of Interstate Commerce
Bringing your cannabis products into new states is wildly time-consuming and expensive. Not to mention, you’re placing a lot of trust in people you don’t know.
In traditional retail environments, the operator can just ship the product across state lines, no problem. It’s still the product your team, your facility, and your procedures made. With cannabis, it’s not the case.
The current cannabis arrangement creates distance between the brand’s stakeholders and the final product’s outcome.
What happens if a brand chooses a bad cultivator in a new state and your brand’s name is tarnished to that market?
This has happened before to brands entering a new state.
Interstate commerce also solves:
- Lack of supply, common in new markets and limited-license markets, though that issue will likely be solved upon federal legalization anyways.
- Limited choices for patients and consumers.
- Part of the illicit market’s appeal, where prices and high regulations turn people away from cannabis retail stores.
- Environmental barriers, as Midwestern and Northern states can’t grow outdoors like California.
- Supply chain issues on the business side of things.
Less Is More
Cannabis companies who want to establish a national presence when interstate commerce is permitted should be strategic, first and foremost.
You’re sure to waste time and resources entering too many markets at once, where you’ll be forced to compete against brands who have spent years building brand awareness in these regions.
While we expect to see many larger cannabis companies pursuing this path to justify their lofty valuations, we subscribe to the viewpoint that brands would be much better off taking the time they need to successfully establish themselves in these new markets, expanding into one new region at a time.
Interstate commerce could be permitted before federal legalization.
There are pieces of legislation out there supporting interstate commerce as an isolated issue. The question is, will it happen before federal legalization arrives?
Our guess is no. Federal legalization and measures like SAFE Banking are the hot button, prioritized issues (as they should be), not interstate commerce.
There’s not as much of a push for interstate commerce right now, especially as new markets are just getting off the ground and established brands capturing market share could disrupt those small businesses.
Interstate commerce will forever change the U.S cannabis industry.
The current model of having to acquire new cultivation licenses to bring products to new markets will all come to a screeching halt when federal legalization arrives.
Interstate commerce will be facilitated and individual states will no longer be forced to operate in lonely silos.
We expect this to have some massive implications for where cannabis is produced, which could reduce employment in local areas where cannabis cultivation facilities exist today, however, interstate commerce will also bring a bounty of benefits.