What Small Businesses Need to Know About Virginia's Medical Cannabis Market

Virginia's medical cannabis program has been steadily evolving since its inception. What began with limited CBD and THC-A oil access has now expanded to include botanical cannabis (flower) and a variety of products. However, a recent study conducted by Cannabis Public Policy Consulting (CPPC) provides crucial insights into the current state of the market, highlighting both significant challenges and potential opportunities that small businesses should be aware of.

Commissioned by the Virginia House Health, Welfare and Institutions Committee, the study aimed to assess patient access, market conditions, and the feasibility of introducing new licenses. Its findings reveal a market that is struggling to meet demand, largely due to Virginia’s unique policy structure and high product prices.

High Prices Drive Patients Away from Regulated Dispensaries

One of the most notable findings in the study is that price is the most frequently reported barrier for medical patients seeking access to regulated cannabis products. Medical cannabis in Virginia is consistently more expensive than in other medical-use states. Patients reported an average price of approximately $19 per gram for flower, while publicly available data indicates an average closer to $14 per gram. Even at the lower end, this remains significantly higher than in states such as Pennsylvania ($10), Arkansas ($9), and Florida ($10).

This cost disparity is a primary reason why many certified patients are turning away from Virginia’s licensed dispensaries. In fact, only 23.6% of patients’ cannabis use over the past month came from the regulated medical cannabis system.

Where Patients Are Actually Getting Their Cannabis

The majority of patient demand is now being met outside the regulated market. This underscores a critical challenge for small businesses in the industry: they must understand and adapt to a highly competitive landscape dominated by unregulated sources.

• Home Cultivation: Over half of medical patients (57.5%) reported obtaining cannabis they grew from home. This is a legal option for adults 21+ in Virginia.

• Friends and Family: A large percentage of patients (65.2%) reported obtaining cannabis from a friend or family member (gifting or purchasing). While gifting up to one ounce is legal, purchasing from friends or family is unlawful and accounts for 11% of total grams obtained by patients.

• Out-of-State Travel: Nearly 12% of patients reported traveling to other neighboring jurisdictions —primarily Washington, DC, and Maryland—where cannabis is often more affordable. Interestingly, medical patients were significantly more likely than non-patients to seek cannabis outside of Virginia, despite having access within the state.

• Gray and Illicit Markets: Patients reported sourcing 10% of their cannabis from illicit dealers and an additional 19% from the “other” category. The study suggests that much of this is likely from Virginia’s expansive gray market, which includes unlicensed but openly operating sellers.

This data makes it clear that regulated businesses are not just competing with each other, but with a wide spectrum of alternatives—including legal home cultivation, social sharing, interstate purchases, and unregulated sales. To remain competitive, licensed operators must understand this landscape and adapt accordingly.

Quality and Service: What Patients Appreciate

While cost is a barrier, the study found that patients are generally satisfied with the quality of products available through regulated dispensaries. Patients who were more satisfied with quality were less likely to report cost as a barrier, suggesting a segment of the market values quality.

Furthermore, patients reported high satisfaction with medical dispensary employees, noting their helpfulness, knowledge, and ability to provide useful recommendations. Patients are most likely to consult a doctor or medical provider for cannabis questions, followed by the dispensary pharmacist and then a dispensary employee. This emphasizes the value of a knowledgeable and helpful staff in the regulated retail environment.

The Policy Landscape: Barriers for Small Business, Potential for Change

The study highlights that Virginia's unique policy framework directly contributes to the market conditions and high prices. Key elements include:

• Limited Licensing: Only five Pharmaceutical Processor licenses are permitted statewide, with only four currently operational.

• Mandatory Vertical Integration: Licensed Pharmaceutical Processors must cultivate, manufacture, distribute, and sell cannabis under one entity. This requires significant upfront capital, favoring large, well-funded operators.

• Health Service Area (HSA) Segmentation: Pharmaceutical Processors are restricted to operating retail locations within their designated HSA, limiting regulated competition within those regions. There is currently no operational dispensary in HSA I.

Virginia has 5 Health Services Areas (HSA) for Medical Cannabis

This structure necessitates massive investment, making entry extremely difficult for most small businesses. The lack of regional competition under the HSA model with limited licenses reduces the incentive for existing operators to significantly lower prices.

However, the study explores Policy Pathways for Consideration by the Virginia General Assembly, some of which could open the door for small businesses. Pathways 2 and 5 propose creating standalone licenses for cultivation, manufacturing, and dispensing. Pathway 5 also suggests permissive vertical integration, allowing operators to hold multiple licenses but not requiring it. These changes could lower the barrier to entry, allowing businesses to specialize in one area (like cultivation or processing) without needing the massive capital for a fully integrated operation.

Other Relevant Points for Small Business

• Access Issues: While price is the main barrier, lack of nearby dispensaries and transportation are also reported barriers, particularly in areas like HSA I which currently lacks a regulated dispensary. Increased retail points could potentially help capture more regulated demand, though the study's simulation indicates this alone may not work without addressing price.

• Alternative Cannabinoids: A significant portion of consumers (64% past year, 26% past month) have used alternative cannabinoid products (other than Delta-9 THC), often sold outside regulated dispensaries. This indicates a broader market for cannabinoid-based products.

• Patient Certification Barriers: Many non-medical consumers who considered getting certified didn't know how (48%), found the cost too high (35%), or already had access to cannabis (22%). The "already have access" reason is likely linked to the availability of cheaper, alternative sources. Simplifying the certification process or conducting patient outreach could potentially increase the pool of certified patients.

• Data is Improving: The study highlights the current lack of centralized supply data in Virginia's medical program. However, the Virginia Cannabis Control Authority intends to implement a track-and-trace system in 2024. This will be crucial for understanding market dynamics and supply/demand in the future.

Key Takeaway

Virginia’s regulated medical cannabis market currently captures only a small share of patient demand. This limited participation is largely due to high product prices, which are driven by a restrictive policy framework that benefits a few large, vertically integrated operators. As a result, many patients are seeking out alternative, often more affordable, sources for their cannabis needs.

“For small businesses, the current market presents significant barriers to entry, including limited license availability and high operational costs. However, if legislative changes are made—particularly those that introduce standalone licenses or allow more flexible vertical integration—there could be substantial opportunities for new entrants. These reforms could enable smaller operators to specialize in cultivation, manufacturing, or retail, while offering competitive pricing and personalized service.

The findings of this study are an important tool for understanding Virginia’s current market conditions and for preparing for future growth opportunities, especially as the policy landscape continues to evolve.