Missouri Cannabis Market Overview: Insights for Cannabis Businesses in 2024

The Missouri cannabis market has experienced significant growth since the legalization of medical cannabis in 2018 and the launch of adult-use cannabis in early 2023. 

In 2023, Missouri’s legal cannabis market size was estimated at $1.44 billion, according to Grand View Research, and “is expected to grow at a compound annual growth rate (CAGR) of 20.4% from 2024 to 2030.” 

With over 200 licensed dispensaries and a growing consumer base, Missouri has quickly become one of the most dynamic emerging cannabis markets in the Midwest. However, along with growth come regulatory, operational, and financial challenges that cannabis businesses must navigate to stay competitive.

As Missouri’s cannabis industry continues to evolve, businesses need to understand the specific challenges and opportunities present in the state. Here we’ll outline the unique hurdles cannabis businesses face in Missouri as well as key financial and tax considerations.

Missouri Market Challenges

Product Recall Fallout 

In 2023, a widespread product recall in Missouri’s cannabis industry disrupted the supply chain due to concerns over inadequate testing and tracking procedures. This forced businesses to pull products off shelves and resulted in financial losses from unsellable inventory. 

To prevent future recalls, businesses must follow Missouri Department of Health and Senior Services (DHSS) guidelines closely and invest in quality assurance measures. Failure to do so could lead to further operational and financial setbacks.

Hemp-Derived Cannabinoid Ban

Missouri’s recent ban on hemp-derived cannabinoids, including popular products like Delta-8 THC, has created challenges for businesses that relied on these alternatives. Licensed cannabis entities cannot sell hemp-derived cannabinoid products if the cannabis was produced outside of the state of Missouri. 

Companies must now navigate these changing regulations and adjust their product lines to comply with state laws, or risk penalties and further business disruption.

New Packaging Rules 

According to MJBizDaily, Missouri cannabis operators began racing to a fire sale that affected thousands of cannabis products that did not meet new packaging requirements that went into effect on Sept. 1, 2024. Products that do not meet the new requirements must be removed from shelves by Nov. 1, 2024. This has caused some operators to discard a significant amount of packaging units, which can result in up to five-figure losses, one operator explained to the publication. 

Financial and Tax Considerations 

Section 280E and Tax Strategies

Missouri cannabis businesses, like all U.S. cannabis companies, are subject to the limitations of Section 280E of the federal tax code. Because cannabis is federally classified as a Schedule I controlled substance, businesses cannot deduct normal business expenses from their taxable income, resulting in high effective tax rates.

However, cost of goods sold (COGS) is deductible. This provides an opportunity for businesses to strategically allocate expenses. Carefully classifying expenses as part of COGS (such as cultivation or production costs) will help companies minimize their tax burden. Working with a cannabis tax CPA such as CJBS is critical for developing tailored tax strategies to maximize these deductions.

Local Tax Variations

While the state imposes a 6% sales tax on adult-use cannabis, local jurisdictions can stack an additional 3% tax. This structure creates disparities in pricing and consumer costs depending on the location. Businesses operating in municipalities with higher taxes may face pricing pressures and sales impacts as customers may travel to neighboring areas with lower tax rates.

Cash Flow Management and Banking Challenges

Because of cannabis’ federally illegal status, cannabis businesses in Missouri often face difficulty accessing traditional banking services. 

Many are forced to operate in a largely cash-based environment, which presents security risks and complicates day-to-day operations. Efficient cash flow management is essential, particularly for businesses dealing with large tax liabilities under Section 280E.

Working with accountants experienced in the cannabis industry can help businesses create effective cash management strategies, including setting aside funds for quarterly tax payments and managing payroll.

Cannabis Business Valuation and M&A

As the Missouri market matures, cannabis businesses may look to grow through mergers and acquisitions (M&A). 

Accurate and transparent financial records are crucial for any company looking to be acquired or seeking investment. At CJBS, we can assist with business valuation, due diligence, preparing financial statements, and helping businesses become investor-ready. Understanding the unique factors that affect cannabis valuations (such as limited licenses, local competition, and regulatory compliance) is essential for positioning your business favorably in this market.
Partnering with an experienced cannabis accounting firm is key to staying compliant and optimizing financial performance in this evolving market. For audit and assurance solutions, tax planning and compliance, and business solutions–cannabis businesses in Missouri can turn to CJBS for assistance. Learn more about our cannabis practice and leaders Matt Bergman, CPA, and Ryan Guedel, CPA here.