How Legal Cannabis Companies Can Compete with the Black Market

exchanging money for cannabis iStock / Alkov

Competition is something every startup has to deal with, and competition can be particularly cut-throat in retail, liquor, and food service industries. A dispensary operator has to deal with the challenging aspects of all three of these industries – counting on the right location, knowledgeable and friendly staff, competitive prices, and a good selection of products will combine to make their business successful. But dispensaries also have to deal with a type of competition that isn’t at all common in the modern world otherwise: the black market.

How does a dispensary operator manage to beat out competitors that aren’t playing by the same rules? First, some perspective. There are plenty of cannabis customers who were never comfortable buying on the black market or didn’t have access to it. As time goes on, new generations of cannabis users who have never known prohibition will go to dispensaries by default, never thinking to seek out extralegal alternatives. Price isn’t the only sensitivity point buyers have, no matter what market they’re in. Here are some other things to try to make your dispensary stand out:

Expertise

The dispensary customer base is the most informed group of cannabis consumers, and as access increases and stock diversifies, many cannabis users are thinking about the plant much like wine connoisseurs think about grapes. Offering a curated, gourmet experience is an excellent way to keep people coming. Hire experts who are passionate about cannabis flower, the differences between strains, and train them to make the shopping experience as informative and exciting as visiting a great single-origin coffee shop or attending a wine tasting. Black market customers make do with whatever their dealer has available. Your customer can get exactly what they want, every time they want it, and when they try something new it’s because your staff listened to their needs, learned their tastes, and opened the doors to a new experience for them.

Specialization

cannabis oil cbd

iStock / OlegMalyshev

Not every dispensary has to sell every product on the market. Specialize in the best tinctures, the most innovative vapes, or build a dizzying collection of edibles, a Willy Wonka candy shop for adults. Whiskey aficionados don’t shop for their hobby at the grocery store. They go to where the experts are, to a store that invests in depth, not just breadth.

Get to know your suppliers. Find out what they have in the works, products you might be able to carry before the other guys do. Celebrate the rich variety and complexity of cannabis in all its many forms. Find a niche none of your competitors have carved out yet. Non-THC cannabis products are exploding in popularity right now. You could specialize in CBD, or put together a whole concept of cannabis products designed to help relaxation, fighting anxiety, aiding sleep. Once you pick a focus all the other decisions fall into place much more easily. Your CBD shop probably would stock cannabis-infused bath oils, but probably wouldn’t stock that lighter emblazoned with Grateful Dead logos.

Loyalty

A lingering side-effect of prohibition is the way so few dispensary operators think of themselves as being in a retail business. Take a page out of Starbucks’ book and build a loyalty program. Whether it’s as simple as a punch card or as sophisticated as a database that tracks purchases and finds patterns to help you market to your returning customers better, a few perks here and there can keep your customers loyal to you. Even in a major city that may have hundreds of dispensaries, customers aren’t equally inclined to go to all of them. Your location matters, as well as the shopping experience you provide. Look objectively at the neighborhood you’re in. Is it youthful, up-and-coming? Established and high-end? Take your cues from other types of retail stores in your area and try to match their vibe. As cannabis use moves out of the garage and into the living room, a lot of consumers will be turned off by the kinds of dispensaries that feel like speakeasies, with aggressive security everywhere and defensive architecture distancing the consumer from the product they came to you to buy. Make your store inspire the same feelings your products do, the feelings your customers are there looking for. Relaxed, centered, well, or inspired, adventurous, innovative. Pay attention to which customers are looking for something new and which ones value consistency. Your store should make shoppers feel safe, welcome, and in certain markets, aspirational. There’s no shame in using cannabis, so don’t make customers feel like they have to sneak into your store.

Safety

Above all else, you can offer something no black market vendor can: regulation. Communicate how your products are tested and analyzed, and emphasize how seriously both you and your vendors take quality control and the customer experience. Every scare about tainted products, be they street drugs or the romaine lettuce at Chipotle, is an opportunity for you to show your customers you have their backs. Remember, shopping on the black market is never anyone’s first choice. It’s a decision made out of necessity. Your job is to remind people that they don’t have to make that kind of sacrifice anymore. They can walk into your dispensary right through the front door.

The Black Market Will Persist (For Now)

Black market weed

iStock / designer491

Eliminating the black market for cannabis, linked in the public imagination with street crime, gang violence, and even terrorism, is one of the most common stated goals for legalization, but legalization doesn’t make the black market go away overnight. Customers are creatures of habit. Someone with a reliable dealer and little reason to worry about legal consequences (like middle-class white cannabis users) is unlikely to want anything to change. Getting a marijuana use card can be a hassle in medical-use-only states, and even in states where recreational use is legal, the taxes lawmakers pile onto cannabis to sweeten the legalization deal and win over hard-line anti-drug voters can mean prices in dispensaries are twice as high as they are on the street.

Selection is a limiting factor too since many states haven’t yet legalized some of the more popular delivery methods for THC and CBD, like edibles and beverages. The black market doesn’t have to worry about regulations. They just sell what their customers want to buy. Even supply issues, always a concern for the black market after a big drug bust, still affect legal dispensaries much more than one might expect. The ongoing federal ban puts a lot of pressure on growers, who have to conduct their business without access to basic financial tools like banking, and who are always at risk of a federal raid. Even if those issues are cleared up, cannabis growing is, like any other plant, still farming, and still subject to good harvests and bad ones.

How Legal Cannabis Companies Can Compete with the Black Market was last modified: by
Kate Francis
About Kate Francis
Kate Francis is a journalist specializing in business reporting and politics. She lives in Los Angeles, where she divides her time between Lakers games, yoga, and avocado toast