As the legal marijuana sector enters another year of adjustment, new data points show an industry still working to find its footing. While some long-standing challenges remain unresolved, recent developments suggest parts of the market may finally be moving toward a more sustainable balance.
Tax policy remains one of the most consequential issues for cannabis retailers. For years, Section 280E of the federal tax code has prevented marijuana businesses from deducting ordinary operating expenses, including rent, wages, and compliance costs. This framework has routinely pushed otherwise viable stores into the red.
In many established cannabis markets, the tax burden created by 280E has exceeded total net income, effectively eliminating profits altogether. In some cases, the typical dispensary is already losing money before considering expansion or long-term investment.
Analysis from Headset estimates that the rule has added between $400,000 and $800,000 or more in annual tax obligations per dispensary, leaving fewer resources for hiring, infrastructure upgrades, or financial cushions during slow periods. These effects are most pronounced in mature states where competition is fierce and wholesale prices are already compressed.
The situation could soon change following President Donald Trump’s executive order that aims to move marijuana to a new federal classification, opening the door to relief from the 280E restrictions.
Licensing trends tell a different story depending on the segment of the supply chain. Nationwide, the number of active marijuana licenses slipped to 37,555 in 2025’s quarter four, a decline of 1% from Q3. That drop continues a contraction that began in late 2022. Compared with two years ago, total licenses across the country are down 13%.
Most of that reduction has occurred among growers. Since 2023’s Q3, cultivation permits have fallen by 24%, representing a loss of more than 5,000 licenses. Retail permits, by contrast, have been relatively stable, declining by just over 300 during the same time.
Some analysts view the pullback in cultivation as a healthy correction after years of oversupply. At the close of 2025’s Q3, there were approximately 16,000 cultivation licenses and about 11,600 dispensary licenses in the U.S. Canada offers a sharp contrast, with far more storefronts than grow operations.
At the consumer level, discounting remains a dominant strategy. Retailers leaned heavily on promotions throughout 2025 to maintain traffic and move inventory, especially in crowded markets.
In most states, average monthly markdowns on marijuana flower climbed over the course of the year. Washington posted the highest average discount rate at 39%, a figure that may be influenced by its steep 37% retail tax. Arizona followed closely, averaging 35% and briefly peaking near 37% in the spring.
Industry observers expect aggressive promotions to remain common into 2026, as many operators prioritize customer retention and sales volume over margin recovery in an intensely competitive landscape.
Many foreign-based cannabis firms, such as Tilray Brands Inc. (NASDAQ: TLRY) (TSX: TLRY), will be hoping that conditions improve meaningfully for all licensed firms within the U.S. so that they can not only survive but thrive as well.
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