Most legal adult-use cannabis markets start out as medical-only, then shift to recreational a few years later. The switch from medical to recreational sales can be a massive boost to business.
The transition from med to rec was essentially controlled chaos for us. We knew immediately we needed more employees. We needed more inventory. We needed a much bigger space because we had lines down the street. We weren't allowed to be open 24 hours a day. But if we could have done that, we absolutely would have.
Tyler Hafendorfer, Regional Manager at The Fire Station
Properly preparing your store for the influx of recreational cannabis sales is crucial for maximizing the potential increase in customer traffic.
Read on for the essential steps you need to take to transition your medical dispensary to the recreational market.
Note: Not every dispensary transition from medical to recreational will look the same. Consult your state’s regulatory agency to make sure you’re taking all necessary steps.
Acquiring new licenses
Your license as a medical center doesn’t cover recreational sales, so you’ll need to apply for a recreational license for the location(s) where you want to sell adult-use products.
Below are some helpful steps to get you started on the license transitioning process:
Verify your store’s zoning. Check with your state’s regulations that your existing store location is properly zoned for adult-use sales. Not all areas or municipalities will allow recreational cannabis storefronts. For example, dispensaries generally must be a specified distance from schools and churches.
Check for state licensing availability. Most markets have a limited number of recreational licenses available. Fortunately, many states give retail license priority to existing medical cannabis providers before opening up applications to new cannabis businesses.
Research city and county licensing. Some municipalities require their own licenses on top of the state-granted ones. Others don’t allow recreational marijuana sales within their limits even if it’s legal by the state.
Determine the cost of a recreational license. Adding a recreational license can often have significant associated costs, but there’s usually a justified upside as it will open up new, higher revenue streams.
Collect all proper documentation. Your state’s cannabis regulatory agency will require specific documents to apply for a rec license. Approval timelines vary by state, and recreational sales cannot begin until a license is granted, so it’s best to apply sooner rather than later.
Check if you need a transportation license. As you expand your inventory to include recreational products, you may need a transportation license to move products between your facilities or from the processor to your store.
Expanding your existing inventory
How you manage your inventory when switching from medical to recreational sales will depend on your state.
Some states require a completely separate inventory for recreational products. Others allow dispensaries to use the same inventory for med and rec, but sometimes they have potency rules that stipulate products can only be sold as med or rec, not both.
Check your state’s regulations on how recreational dispensaries must manage inventory compared to medical dispensaries.
If you’re able and choose to include both medical and recreational inventory in your dispensary, you will need to create a separate product catalog and strain catalog for each so your POS system stays up to date.
As you expand your inventory, keep in mind customer preference, pricing, supply and demand, and compliance considerations.
Compliance considerations
When state cannabis legalization changes from medical to recreational, they generally roll out added compliance measures. Some you’ll already be familiar with, like seed-to-sale tracking, and others may be new.
Here are some compliance measures to know before expanding your inventory:
Recreational purchase limits
Marketing laws for recreational products and dispensaries
How to label medical vs recreational products
New or added sales and inventory report protocols
Customer preference considerations
Recreational dispensaries have an entirely different clientele than medical dispensaries, which means your inventory needs will change.
In fact, a recent report from Headset found typical wellness products like Tinctures, Topicals, and Capsules are declining in popularity while Beverages, Edibles, Vapes, and Pre-Rolls are increasing.
Your new adult-use customers will be looking for more than medicine. They’ll be curious about cannabis products to help with self-care, creativity, athletic performance, relaxation, etc. You need to have an updated inventory that speaks to these different needs.
To start, your inventory will be a bit speculative. As you start to process recreational sales, watch your inventory closely to see what your new rec customers are buying and what they aren’t. Continually adjust your adult-use product offerings over time based on early learnings.
Pricing considerations
When expanding your inventory, keep these things in mind before setting your prices:
How much inventory and cash your state allows recreational dispensaries to keep on hand.
Your state-specified purchase limits for recreational products (med and rec purchase limits are often different).
What recreational-specific taxes will be imposed, such as state excise tax, sales tax, regional/local tax, and federal taxes like federal income tax.
Your store’s strategy on markup (often stores mark up recreational use products more than medical products).
Any plans to offer out-the-door pricing. OTD pricing simplifies cash handling and reduces sticker shock.
Supply and demand considerations
Because of the requirement that all cannabis sold in-state is grown in-state, be prepared for supply issues. Some sources report cannabis retailers experiencing 50x the traffic after switching from medical to recreational, but it takes time for suppliers to catch up to that demand.
Growers first have to cultivate state-compliant plants which can take up to three months.
Speaking of suppliers, some states have specific producers for med products, rec products, or both. If you only have medical product suppliers currently, you may need to find new suppliers for your recreational cannabis products.
We went from eight $10,000 days jumping up to sometimes over $30k, just from going recreational. Now the supply factor is a headache. There's more people that are trying to get it recreationally than the state has approved to produce it.
George Pittenturf, General Manager at The ReLEAF Centers
Store workflow considerations
Don’t forget to prep your store and staff for higher foot traffic and increased demand. To do this, there are a few changes many dispensaries make right away.
Add online ordering, curbside pickup, and/or delivery. Shopping for recreational products should closely mirror traditional retail experiences like buying coffee or groceries. However, these options aren’t available in every legal state, so check to see if your area allows them or if additional licenses are required to get set up.
Update your standard operating procedures.Implement new SOPs for your adult-use workflows. Typically you will need to make adjustments for queue management, ID verification, inventory management, pricing, and purchase limits.
Run reports and investigate new data.Reporting and analytics from your first few weeks of rec sales will help you understand your new customer base. Track key demographics like age, gender, and product categories. Then you can adjust your game plan accordingly.
Consider additional payment methods. Give recreational consumers more convenient ways to pay, speed up transaction times, and increase cart sizes by enabling non-cash payment options. Flowhub data shows that consumers spend 33% more on average when they aren't limited to the cash in their wallet.
Changing your store layout
Incorporating new customers and inventory into your cannabis dispensary might mean adjusting your current retail layout.
As a medical marijuana dispensary, you already have a separate check-in/waiting area. If you’re expanding to include recreational, consider adjusting your waiting room so medical and recreational customers follow a different flow. Or you could keep the waiting area the same and prioritize sending medical customers back first.
If you’re transitioning to a strictly recreational marijuana business, you could adapt that space into your sales floor and have a staff member check IDs at the door.
Either way, remember that recreational customers don’t always have the same knowledge or needs as medical patients. They tend to buy based on what looks good on the shelf or what your budtender recommends as opposed to what they're prescribed.
Be sure to have a deliberate plan for where you will store and display your recreational products and set up any additional rooms, shelving, or drawers as needed. Keep security in mind as well when adjusting your dispensary layout. With the increase in traffic and inventory, you may need to enhance the dispensary security measures at your store.
Your staff needs to be prepared for the customer growth your store will likely see. You may even need to hire more team members to keep up with the increase in demand and foot traffic.
Make sure your employees are trained on:
Using your dispensary point of sale system. Your daily operations, like processing transactions, auditing inventory, and compliance reporting, are dependent on a cannabis-compliant POS system and your staff needs to be well-versed on your software workflows.
Educating your customers. Recreational consumers bring new products and consumption methods that your staff needs to know about. Your new customer base may not know as much about cannabis as your medical customers, so your budtenders need to be prepared to answer more questions about THC and CBD products than usual.
Maintaining compliance. When states transition from medical to recreational, you can expect more rules and regulations around cannabis sales and cultivation. As you update your store policies and procedures, be sure to keep your staff in the loop.
Watching customer profiles. With two types of customers now, staff must keep them separate. Medical patients must be marked "Med" in their profile, along with proper documentation of their med card. Recreational customers must be marked as “Rec” and sold corresponding recreational products. These two customer groups must not be confused.
Selling within the limits. Recreational laws dictate sales caps per customer. Make sure your staff isn’t overselling to your new customers. If you have a POS system like Flowhub, they can follow the built-in purchase limit tracker bar to make this foolproof.
We used to think we knew what a busy day was. And then we went recreational and that changed everything, but for the better.
Tyler Hafendorfer, Regional Manager at The Fire Station
Marketing your dispensary
With a new audience, you may need to consider a new image and voice for your brand.
Logos with a green cross in them or names that include “health” or “medical” could be confusing for customers looking for a recreational shop. Consider a rebrand for your dispensary to mirror the change in inventory and clientele.
You should also look into creating a loyalty program or investing in additional advertising efforts, like programmatic ads, email, or SMS marketing, to spread the word about your adult-use dispensary. As time passes, more stores will open and your customer base may shrink if you don’t have active marketing programs in place that keeping customers coming back to your store.
States that switch from the medical market to recreational often introduce a lot of new compliance measures, especially around marketing. Check your state regulator's website to find out what you can and can’t do to market your dispensary. Also, look out for local government requirements.
Every state has different laws, but here are some general rules to follow:
Don’t target minors. Many states don’t even allow dispensaries to advertise on websites, radio, or TV channels if more than 30% of their viewership is under 21.
Don’t make any unproven claims. Factual research must back all claims. As it stands, there isn’t much research into cannabis and its effects, so be careful.
Don’t promote the overconsumption of marijuana.
Offer education to customers on the risks of overuse.
Updating your POS system
The final step in changing your cannabis business to the adult-use market is updating your POS system.
If you’re incorporating cannabis ecommerce into your business model, be sure to choose a POS system with integrations so your online and in-store inventory can live in one place.
Using a system like Flowhub will allow you to monitor both your in-store and online sales while tracking analytics and maintaining compliance.
Basic steps include:
Add new recreational license(s) to the necessary location(s) in your account
Update taxes
Add recreational products and suppliers
Set up adult-use customer profiles
Update Price Profiles
Updating your state tracking system
Don’t forget to look at your state’s seed-to-sale tracking system to see if you need to report medical and recreational sales separately.
Every state is different, but some require an application tag to designate if the product was sold for medical or recreational purposes. You should still be able to report your sales the same way and through the same integration, just with separate medical and recreational tags.
Congratulations and welcome to adult-use sales! This is a time to celebrate, focus, and prepare accordingly to increase revenue.
Ready for your dispensary to go recreational?
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