How to Grow Cannabis Sales Despite High Tax Rates

Luckily, the cannabis industry is growing exponentially as more states legalize the substance for both recreational and medicinal purposes. Despite this growth and expanding support in commercial sectors, it’s becoming increasingly difficult for growers and sellers in the industry to keep their metaphorical heads above water. What can you do to increase sales in spite of high taxes?

Why Are Cannabis Taxes So High?

The cannabis tax rate depends on the state, but consumers can expect to pay anywhere from 5-47 percent in taxes. This is largely because sellers and regulators have to find that sweet spot between keeping prices low enough that consumers don’t turn to the black market, and making enough money that the industry can meet its financial goals. This is in addition to the state or local sales tax companies are required to collect and submit to their governing office if your business is located in one of the 45 states that currently collect sales tax.

There is also the problem of federal opposition. Cannabis and all its related products are classified as Schedule I drugs in the U.S., which puts them in the same class as dangerous substances like heroin. In 1982, the IRS updated the internal revenue code to ban all credits and tax deductions on income generated through the sale of illegal drugs or other substances. That means the normal tax deductions you could claim as a business owner are out of your reach if you sell cannabis or related substances — even if the drug is legal in your state. 

With these tax hurdles to overcome on both sides of running a cannabis business, how can you continue to grow your sales?

Focus on Marketing

Marketing is an essential part of growing your business, regardless of the goods or services you’re selling. With high tax rates causing potential consumers to balk, marketing could mean the difference between bringing someone to the legal market or having them seek their neighborhood dealer. 

Marketing a cannabis business can be challenging because depending on your location, you may face much stricter restrictions than you would if you were selling other regulated substances like tobacco or alcohol. If you’re just starting out in the industry — or you’ve already got a foot in the door and are looking to expand — check out your competitors. Examine their advertising methods to give you an idea of how to get started. 

Grow an Irresistible Brand

What do you think of when you think of a brand name?  It could be anything from Coke or Pepsi for soda, or BMW for a luxury car brand. No matter what names spring to mind, they all have one thing in common — you associate that brand with a specific product or service. You need to do the same thing for your cannabis business to grow sales.

The trick is to create an irresistible brand that will bring customers in and make them think of your company first when they’re looking for cannabis products. It might be one of the most regulated industries in the country, but that doesn’t mean you can’t use advertising and social media channels where they are available to make your company’s name stand out. 

Expand Your Audience

It’s tempting to limit your audience to a single demographic because that makes marketing easier. If you’re looking to grow your sales, though, you can’t afford to limit yourself within the industry. Look at different potential audience targets to see how you might best include them in your marketing plans. Cannabis use in senior citizens, for example, has jumped by 75 percent in the last three years, making them a growing demographic that many dispensaries and cannabis businesses are overlooking. 

Instead of sticking to a single demographic, take a look at the breadth of your clientele  — and your competitors. That way, you can see where you might be lacking and where you can improve your marketing to expand your audience. 

Be Patient

Finally, the best advice we can offer is to be patient. Things might look grim right now, but as more cities and states decriminalize and legalize cannabis for recreational and medical use, it will become easier for regulators to find that sweet spot. There will be a better balance between taxation and profit that ensures companies can make money while keeping prices low. 

Long Beach, California, recently voted to drop the city tax rate from 6% to 1% on cannabis-related businesses. It will take some time, since cannabis legislation is incredibly new and everyone is still finding their footing. Be patient and pay close attention to any applicable legislation, especially as it changes. Patience will be your best friend if you’re hoping to grow sales in this volatile market. 

The Future of the Cannabis Industry

Cannabis businesses are here to stay, and whether you’re already part of the industry or looking to get your feet wet, it’s important to be aware of the taxes involved, both as a consumer and as a business owner. The industry will continue to grow and change as new laws are passed. Hopefully, the substance is will eventually be legalized on the federal level. Be patient, and the future of the cannabis industry will be in your hands.

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