The restraints, including caps on potency levels, product bans, and limitations on packaging, product design, and marketing, are proving to be detrimental to many aspiring cannabis entrepreneurs and businesses.
One of the more confounding and frustrating characteristics typifying some of the more high-profile and potentially lucrative adult-use cannabis markets across the country is the burdensome and restrictive nature of the various regulatory infrastructures created to provide the necessary rules and guidelines to govern the relatively new and still-developing American cannabis industry.
That’s a lot of words to effectively say, “There are too many complicated and business-unfriendly rules.” Ironically, this constant drumbeat of dissent is primarily coming from medical marijuana operators trying to transition from the medicinal market to the adult-use side of the cannabis world.
As first reported by MJBizDaily, many medical marijuana business owners paint a rather negative and discouraging picture of their sojourn from medical to recreational operations and sales. Theoretically, moving from the medicinal side to the larger adult-use market should provide licensed companies with better business opportunities, a more extensive and diverse customer base, and exponential sales growth.
Unfortunately, the reality is less exciting and much more of a tedious and difficult grind for those unsuspecting souls drawn in by the potential for expanding their business and raking in the big bucks. Among the states with the most onerous regulations and restrictions, Missouri, New York, Maryland, and Arizona provide some of the most difficult challenges for would-be retail dispensary operators.
Missouri
For licensed businesses in Missouri, there are growing industry concerns regarding a potential inventory shortage brought on by new packaging guidelines. The fear is that they may create a massive backlog as dozens of brands and manufacturers await approval for thousands of product stock-keeping units (SKUs) as deadlines loom.
The unprecedented delay, prohibiting many brands from entering the market, comes from child safeguards added by state regulators under new cannabis packaging regulations passed this past July, approximately five months after the launch of Missouri’s adult-use sales market.
The delays are having seismic consequences for some of the state’s largest cannabis companies. For example, approval delays have kept Clovr, the state’s largest cannabis product manufacturer, from placing new packaging orders. In addition, with overseas deliveries from Asia typically requiring 60 days, the delays could cause the company to miss an important deadline for cultivators and manufacturers to receive the packaging approvals.
“There’s been thousands of submissions, and right now we have a March 1 deadline that I don’t think is attainable,” said Clovr CEO Josh Mitchem.
"There’s been thousands of submissions, and right now we have a March 1 deadline that I don’t think is attainable."
- Clovr CEO Josh Mitchem
New York
Several cannabis companies in the “Empire State” are also struggling to comply with the litany of new packaging guidelines for the state’s adult-use market following years of serving medical patients.
“Differing requirements in the current adult-use and medical regulations for product packaging and labeling has been causing confusion with new, adult-use wholesale customers. The pending regulatory update should hopefully remedy the disconnect,” said Dan Rickert, director of compliance at PharmaCann, a Chicago-based MSO that gained clearance in December to sell wholesale cannabis to New York adult-use retailers and marijuana products to consumers.
"Differing requirements in the current adult-use and medical regulations for product packaging and labeling has been causing confusion with new, adult-use wholesale customers. The pending regulatory update should hopefully remedy the disconnect."
- Dan Rickert, Director of Compliance at PharmaCann
Maryland
In Maryland, one of the main issues confronting licensed marijuana dispensaries is the lack of leeway afforded to market their stores, brands, or cannabis products anywhere outside the confines of their respective businesses.
On the same day that officials launched adult-use sales, July 1, 2023, they also passed legislation banning marijuana advertisements anywhere outside an operator’s store or facility. The wide array of restrictions, including any billboard, poster, outdoor sign, or display, also outlaw digital advertising designed “to induce the sale of cannabis or any cannabis-related product or service.”
According to industry advocates and stakeholders, those restrictive guidelines, coupled with potency caps, are equally stifling growth opportunities for local cannabis businesses as well as suppressing the full potential of the market.
“It was one way in medical, and then we go to adult use, and everything changes. It’s not conducive to business,” said Wendy Bronfein, co-founder of Maryland-based marijuana operator Curio Wellness.
"It was one way in medical, and then we go to adult use, and everything changes. It’s not conducive to business."
- Wendy Bronfein, Co-Founder of Curio Wellness
Arizona
For operators in Arizona, a new rule requiring the display of QR codes and accompanying information went into effect on Jan. 1 for all marijuana products labeled for sale. Under the revised law, all cannabis packaging must include a scannable QR code that links to a webpage detailing:
- Harvest and manufacturing date
- Strains
- Extraction Method
- Lab Report
- Distribution Chain
- A warning: “Using marijuana during pregnancy could cause birth defects or other health issues to your unborn child.”
“Changing labeling laws like this end up costing retailers burdensome hours and dollars to maintain compliance,” advises John Yang, CEO and co-founder of Treez, an Oakland, California-based technology company that makes cannabis industry software.
"Changing labeling laws like this end up costing retailers burdensome hours and dollars to maintain compliance."
- John Yang, CEO and Co-Founder of Treez
While these are not the only state markets in which medical operators transitioning to adult-use sales face prohibitive and punitive rules and regulations, they represent a microcosm of the issues facing those businesses.
It is somewhat appropriate that these medical marijuana providers, who in many state markets are given licensing preferences over individual applicants, are having such an expensive and challenging time transitioning from the medicinal side of the industry to the more lucrative recreational side.
Having benefitted financially and competitively from years of an effective monopoly or oligopoly set up in their state’s medical cannabis program, they now must contend with all the same rules and bureaucratic red tape “regular” entrepreneurs and companies face in trying to secure a license in the adult-use sector.
With unlimited licensing, fewer rules, and less expensive start-up costs, states like Michigan may be the better model for future entrants into the recreational cannabis industry to copy. Health and safety are essential, but staying open for business is the primary driver and priority. Smaller operators with less overhead and more flexibility could become the most efficient and successful choice as future markets emerge.
