While the legalization of recreational cannabis in many American states has made it more readily accessible to everyone from celebrities who smoke weed to regular consumers, it remains an expensive product to purchase. One of the main reasons for this is that, at the federal level, cannabis remains an illegal commodity. That has lead to plenty of legal uncertainty and created many operational hurdles for CBD companies. Let’s look at some of the issues plaguing the cannabis industry.
Reasons why legal weed is so expensive
Running a CBD business can be costly
Due to the complicated legalities concerning cannabis, CBD companies find it difficult or impossible to launch their businesses on out-of-box content platforms. The top ones like Shopify and BigCommerce refuse to deal with companies that sell cannabis products. So, to have an online presence, the companies must build their own content platform and integrate it with an eCommerce platform like WooCommerce. That is not inexpensive.
Advertising weed is against regulations
As per existing advertising regulations, it is illegal to promote weed and other cannabis products publicly. You cannot even show a cannabis leaf to let consumers know what you are selling. That makes it difficult for CBD companies to market their products to their target audience. They have to rely on and invest in getting results from organic search engine marketing. And as you might expect, there is fierce competition between these companies to achieve a higher ranking in the organic search engine results, and that inevitably means higher marketing expenses.
There is the option of advertising on WeedMaps, which is an online company that lists cannabis products, brands, dispensaries, deliveries, deals, and doctors, or on the MANTIS digital advertising network. However, there are hefty fees for both that may be beyond the scope of upcoming CBD companies.
Finding payment processors can be difficult
Given that cannabis is against federal law, many banks and top payment processors are leery about taking on CBD companies as clients. They either refuse to do business with them or charge them higher fees. Without a proper payment processor to support them and process credit card payments, the companies struggle with even regular transactions. They have to take the expensive step of setting up an independent merchant processing system.
Taxation rates are very high
Taxes on legalized weed are very high. CBD businesses have to pay nearly 90% federal tax rate on their gross income. At the state level, nine states—Alaska, California, Colorado, Illinois, Massachusetts, Michigan, Nevada, Oregon, and Washington—tax companies for cannabis sales. There are three types of taxes, and some states levy a combination of these:
• As a percentage of the price (retail or wholesale): In retail, the consumer will pay a tax on their purchase. The retailer will then send that to the state. On the other hand, in wholesale, the state will levy a tax on the deal, and the company then will pass on this cost to the consumer.
• Based on weight (per ounce): There are different tax rates for different cannabis products. In Alaska, for instance, cultivators pay $50 per ounce for cannabis flowers and $15 per ounce for the rest of the plant.
• Based on weed potency (THC level): At present, only Illinois charges a THC-based tax. It levies a 10% tax on the retail price for cannabis products with 35% or less THC content and a 25% tax on the retail price for cannabis products with more than 35% THC content.
All of these aspects contribute toward making it legal how much is a pound of weed so expensive. The cannabis cultivators and companies pass on most of their marketing, business, and tax costs in the final purchase price to the consumer. And if the consumer wants to get licensed and tested weed, they must be prepared to pay the high price for it.
Industry changes are afoot, though, as the U.S. House of Representatives has taken note of the growing market demand for cannabis and cannabis products. They may pass a relief bill allowing financial institutions to back CBD companies without incurring a penalty. If that happens, these businesses will be able to get loans, improve their services, and provide their customers with high-quality, affordable cannabis.