Over the course of the legal cannabis industry’s history, we’ve seen a trend: Legalization starts with a medical program, then shifts to recreational a few years later.
As of the writing of this resource, 36 states have medical marijuana programs, and 17 have adult-use programs. That means medical dispensary owners in those 36 states — and those in states that already have an adult-use cannabis market — must be prepared to expand into recreational to keep up with competition and buyer demand.
We went from eight $10,000 days jumping up to sometimes over $30k, just from going recreational.George Pittenturf, General Manager at The ReLEAF Centers
Read on as we break down the transition process and define what you need to know to transition your medical dispensary to the recreational market.
Note: Not every 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 your 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 with your state’s adult-use regulations that your existing store location is properly zoned. 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 as there are a set number of recreational licenses available in each state. 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 as well. 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, and if it’s an expense you can afford, before submitting your application. Oftentimes, adding a recreational license is a significant cost.
Collect all documentation required by the state to apply for a recreational 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.
As you expand your inventory to include recreational products, check to see if your dispensary also needs a transportation license to move products between your facilities or from the processor to your store.
Your recreational customers will expect online ordering, curbside pickup, and/or delivery. These options aren’t available in every legal state, so check to see if your area allows them and what other licenses are required to set it up.
5 tips for setting up dispensary online ordering
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.
Be sure to 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.
Customer preference considerations
Recreational dispensaries have an entirely different clientele than medical dispensaries, which means your inventory needs will change.
Your new customers will be looking for more than medicine. They’ll be curious about cannabis products that can help with self-care, creativity, athletic performance, relaxing, etc. You need to have an updated inventory that speaks to these different needs.
Note that 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.
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
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)
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Price Matrix Generator to consistently price cannabis products
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 10x 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.
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
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
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 incorporate 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 following a prescription.
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 security measures at your retail store.
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Which dispensary design layout is right for your store?
Training your staff
Transitioning from med to rec greatly opens up your customer base, and your staff needs to be prepared. You may even need to hire more team members to keep up with the increase in demand and foot traffic.
Make sure they’re trained on:
Using your state’s seed-to-sale tracking system.
Educating your customers. Recreational consumers bring in new products and consumption methods that your staff needs to know about. Your new customer base won’t be as informed as your medical customers were, so your budtenders need to be prepared to answer more questions about your THC and CBD products than usual.
Maintaining compliance. When states transition from medical to recreational, you can expect a lot 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 have “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 this new customer base. If you have a POS system like Flowhub, they can follow the built-in purchase limit tracker bar to make this foolproof.
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.
Maintaining compliance in marketing
States that switch from the medical market to recreational often introduce a lot of new compliance measures, especially around marketing. Check your state regulator website to find out what you can and can’t do to market your dispensary. Also look 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 a ton of solidified 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.
Don’t use cartoons or imagery that will appeal to minors.
8 cannabis marketing strategies
Updating your POS system
The final step in changing your cannabis business to the adult-use market is updating your POS system.
Using a system like Flowhub will allow you to monitor both your in-store and online sales while tracking analytics and maintaining compliance.
How to add your new rec store to Flowhub
Add your new rec license(s) to the necessary location(s) in your subscription
Add in suppliers and catalog entries for your rec-specific products
Set up customer profiles to track daily/monthly sales per customer
Add in any recreational- and medical-specific taxes and apply them to the appropriate customer profiles
Update your Price Profiles with the new products
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.