Why Are Dispensary Prices So High? Understanding the Costs of Cannabis

If you’ve ever walked out of a trip to the dispensary wondering, “Why are dispensary prices so high?” you’re not the only one. From taxes to strict regulations, buying legal cannabis often costs as much or more than buying from the legacy market. But what’s really driving these high prices?

Let’s break down the economics of the legal cannabis market, exploring the differences between dispensary and black market prices.

The legalization of cannabis has paved the way for safer access to medical marijuana, but it has also created a lot of red tape and regulations.

The high cost of entry for licensing fees, taxes, supply and demand, and market competition all contribute to the high prices you see at the dispensaries in legal cannabis markets. These barriers may also often discourage small business owners from entering the industry, and sometimes they may even push them out of the cannabis industry.

This leaves the cannabis landscape dominated by large chain dispensaries with operations in multiple states and many investors.

Various factors contribute to the high prices at the dispensary, so let’s examine some of the top reasons.

In legalized states, cannabis is one of the highest taxed products in the U.S. For example, in California, electronic cigarettes have an excise tax of 12.5%, while cannabis has an excise tax of 15%, increasing to 19% starting July 1st, 2025. These tax rates are in addition to the basic state taxes and local sales taxes, which can vary by state and locality. In many legal states, consumers face several taxes on their cannabis purchases, such as:

• Excise taxes
• State sales tax
• Local city taxes
• Cultivation and distribution taxes (often passed onto the retailer when purchasing products)

These high taxes are often what consumers see as contributing to their complaints about dispensary prices.

Dispensaries typically face high operating costs, many before they even open their doors. Opening a dispensary is quite a significant investment, so owners typically have to have their own funding individually, with partners, or investors. When applying for a license to operate any cannabis business in their state and county, owners are required to pay an application fee and a licensing fee if approved. Depending on the state and license type, these can range from $10,000 to $100,000. In addition, cannabis licensees must pay to renew their license annually. 

Dispensaries also face high operational costs associated with local and state regulations. They often pay top dollar for security systems, internal safes for products, METRC tags, and third-party testing. Dispensaries also have employee costs, compliance costs, payroll service, POS, internet, and ATM fees. Some states also require cannabis businesses to be vertically integrated, meaning all products sold at that dispensary have to be made by the same company. This means extra production costs for business owners in these states, adding to the high operational costs.

After a state legalizes cannabis, it can take several years for the market to stabilize. Many businesses start out with a limited number of cultivars and manufacturers. This can mean that there is often a higher demand than there is a supply. Early market competition can lead to high wholesale prices, low inventory, and markups on more in-demand and “premium” products.

However, once the market has matured and stabilized, consumers will begin to see lower weed prices. States like Oregon have seen prices as low as $25 per ounce of flower. This can also lead to trouble for some businesses as they may struggle to cover their basic overhead costs to keep up with the low sales.

Location matters. Some dispensaries in tourist zones or high-cost-of-living areas may have higher prices, as their consumer base may have the means to pay those prices. Other regions may cater to their customers with more reasonable prices while still covering their overhead and turning a profit. In addition, local regulations and supply and demand may also factor into the average prices you see at dispensaries.

In the cannabis market, if you’re in an area that has a limited supply, the cost of cannabis products may be higher than in markets that have more competition. The more cannabis companies there are, the lower the cannabis prices in many stable markets due to the increased competition. This is due to there being more options for consumers to choose from, which can prompt companies to compete to offer their products at the lowest prices.

Because cannabis is still a federally illegal drug in the U.S., cannabis businesses in legal cannabis markets are not permitted to write off any business expenses on the taxes they pay. The federal government only permits dispensaries to write off the cost of goods sold, not other expenses.

Dispensary prices vs street prices are a constant debate within the cannabis industry. While some street cannabis may be offered at a cheaper price, there can be risks associated with buying outside the legal market.

Legal cannabis has been lab tested by a third party to limit the risk of exposure to harmful substances like mold and pesticides. Consumers also get access to verified information about potency and cannabinoid content. Street cannabis typically lacks this level of testing and transparency, which can lead to inaccurately reported cannabinoid levels, along with potential health risks.

Legal cannabis products are also tracked from seed to sale, so you can have insight into every stage they went through before becoming available to purchase at the dispensary. So while dispensary prices may be higher, you’re often paying for added safety and transparency in the product you’re consuming.

Medical cannabis patients often benefit from their status as medical cannabis patients. Many adult-use states with medical programs have provisions within the regulations that give tax breaks to medical marijuana dispensaries and medical patients. This means the final retail price is typically much lower than the recreational marijuana market.

Medical patients also often have access to higher THC products and higher purchase limits than recreational customers. In some cases, dispensaries may also have compassionate care programs allowing for deep discounts or even free products to medical cannabis patients.

If you’re looking for the best prices in your area, here are some tools for finding the cheapest dispensaries:

• HiBuddy (Canada): Just enter your favorite product, and HiBuddy will search dispensaries near you for the best prices.
• Weedmaps and Leafly (U.S. & Canada): Weedmaps and Leafly offer similar features to HiBuddy, having the ability to search for a product and find dispensaries near you that carry it, and which ones have the lowest price.
• Jane (U.S.): Jane offers menu price comparisons across multiple dispensaries in your area.