The Battle for Consumer Access: Over-the-Counter vs. Dispensary Sales Models: Key Trends and Future Signals

The cannabis industry currently stands at a precarious yet pivotal economic intersection, defined by a growing bifurcation between state-regulated vertically integrated operators and the burgeoning federally legal hemp-derived market. This schism represents more than just a regulatory loophole; it signifies a fundamental shift in consumer access points that contributes significantly to the broader CPG (Consumer Packaged Goods) economy. While state-legal markets struggle with high taxation and siloes, the hemp sector has leveraged the 2018 Farm Bill to create a national, near-frictionless supply chain, effectively challenging the traditional dispensary model.

Recent market activity indicates a massive capital and strategic shift toward what is being termed "intoxicating hemp" or hemp-derived cannabinoids. While traditional Multi-State Operators (MSOs) have faced capital crunch and valuation compression, the hemp-derived market has exploded. According to Whitney Economics, the U.S. hemp-derived cannabinoid market was valued at $28.4 billion in 2023, rivaling the state-legal cannabis market. This surge signals a potential reshuffling of power, suggesting that the future of THC consumption may look less like a pharmacy visit and more like a traditional retail experience. Continue reading to understand the key deals and future implications of the battle for consumer access in the 2025 landscape.

The State of Over-the-Counter vs. Dispensary Sales Models in 2025

The battle of over-the-counter vs dispensary cannabis is defined by a disparity in growth velocity and market entry barriers. In the current landscape, the state-licensed dispensary model is facing headwinds driven by market saturation in mature states, heavy tax burdens under IRS Code 280E, and the inability to engage in interstate commerce. Conversely, the OTC model—fueled by hemp-derived products—is capitalizing on distribution channels that mirror traditional alcohol and tobacco sales.

Data from 2023 and 2024 illustrates this divergence. While legal cannabis sales growth has slowed to single digits in mature markets like Colorado and Washington, the hemp-derived sector is projecting aggressive CAGRs (Compound Annual Growth Rates). Specifically, reports indicate that hemp-derived products are now available in widely accessible retail footprints, including gas stations and liquor stores, vastly outnumbering the estimated 10,000 to 12,000 licensed dispensaries operating in the U.S. This massive disparity in points of sale is forcing a cannabis retail models 2025 reassessment, where volume and convenience are beginning to outweigh the exclusivity of the dispensary experience.

Primary Drivers and Objectives of Retail Model Evolution

Three critical drivers are currently fueling the activity in this space, pushing the industry toward a confrontation between these two distinct retail models.

1. Regulatory Arbitrage and Tax Efficiency
The primary objective for operators pivoting to or expanding within the hemp space is the avoidance of IRS Section 280E. State-legal cannabis businesses are prohibited from deducting ordinary business expenses, leading to effective tax rates that can exceed 70%. Hemp operators, however, are treated as standard agricultural or CPG businesses. This disparity allows OTC hemp operators to reinvest capital into growth and marketing at a rate their dispensary counterparts cannot match, driving a significant competitive advantage.

2. Mainstream Market Penetration and Consumer Convenience
The hemp consumer access battle is largely being won on the front of convenience. The objective here is "normalization." Consumers generally prefer purchasing intoxicating beverages or low-dose edibles in the same locations they purchase alcohol or groceries. By utilizing existing distribution networks (liquor distributors, convenience wholesalers), OTC models achieve economies of scale and market penetration that vertically integrated dispensaries—often forced to build their own costly supply chains—cannot replicate.

3. National Brand Scalability
Vertical integration, once viewed as the gold standard for cannabis control, has become a capital-intensive trap for many MSOs due to the inability to ship across state lines. The objective of the OTC model is true national scalability. Brands operating under the Farm Bill definition can utilize national e-commerce shipping and interstate logistics, allowing for centralized manufacturing and drastically reduced overhead. This allows for the rapid development of national brand recognition, a feat that remains logistically difficult for state-siloed cannabis brands.

Analysis of Key Transactions and Strategic Shifts

Recent strategic moves highlight how major players are positioning themselves to hedge against regulatory uncertainty or capitalize on the OTC boom.

1. Curaleaf Holdings Launches Hemp-Derived THC Products (2023/2024)

• Companies Involved: Curaleaf Holdings.

• Significance: Market Expansion and Diversification.

• Strategic Impact: In a landmark move, Curaleaf, one of the largest MSOs in the world, launched a line of hemp-derived THC products under its "Select" brand to be sold directly to consumers online and in standard retail outlets. This move signaled a "if you can't beat them, join them" strategy, acknowledging that the THC retail regulation comparison currently favors the hemp model for scalability and customer acquisition cost.

2. Total Wine & More Pilots THC Beverage Sales (2023/2024)

• Companies Involved: Total Wine & More (various hemp/cannabis beverage brands).

• Significance: Mainstream Retail Adoption.

• Strategic Impact: In Minnesota, where unique legislation allowed for early adoption of low-dose THC edibles and drinks in standard retail, major liquor retailer Total Wine began stocking THC beverages. This creates a precedent for national chains incorporating psychoactive cannabinoids into their standard SKU mix, validating the OTC model over the dispensary model for social-use products.

3. Tilray Brands’ Acquisition of Craft Beer Labels (2023)

• Companies Involved: Tilray Brands, Anheuser-Busch (seller of brands).

• Deal Value: Undisclosed (Portfolio expansion).

• Strategic Impact: By acquiring brands like Shock Top and Breckenridge Brewery, Tilray is not just buying revenue; they are buying distribution infrastructure. This aligns with a future where cannabis beverages are sold OTC. Tilray is effectively building the rails for cannabis distribution before federal legalization occurs, betting on a model where cannabis moves through alcohol distribution tiers rather than dispensaries.

4. Termination of Cresco Labs and Columbia Care Merger (2023)

• Companies Involved: Cresco Labs, Columbia Care.

• Deal Value: Originally valued at approx. $2 billion.

• Reason for Failure: Regulatory hurdles and asset divestiture difficulties.

• Strategic Impact: The collapse of this mega-merger highlighted the fragility of the "bigger is better" strategy within the strict dispensary/MSO framework. It demonstrated that consolidation within the state-legal system is fraught with complexity and diminishing returns, contrasting sharply with the agile, accretive deals happening in the less-regulated hemp space.

What These Deals Signal for the Future Cannabis Landscape

These transactions signal a period of intense market rationalization and a shift in the perceived value of the dispensary license.

1. The Bifurcation of Product Channels
We are witnessing a split where "wellness" and "social" products (beverages, low-dose gummies) migrate toward the OTC model, while high-potency flower and concentrates remain in the dispensary channel. The THC retail regulation comparison suggests that dispensaries may eventually function more like specialty tobacconists or liquor stores, rather than the exclusive gatekeepers of all things cannabis.

2. The Erosion of the "Moat"
For years, investors poured money into MSOs believing that state licenses provided a protective economic moat. The explosion of the hemp OTC market proves this moat is permeable. The Curaleaf move signals that even the staunchest defenders of the regulated market recognize they must diversify revenue streams to compete with the unrestricted access of hemp competitors.

3. Regulatory Convergence is Inevitable
The aggressive growth of the OTC market is forcing the hand of legislators. The market signals indicate that the 2018 Farm Bill loophole will likely be closed or modified, but the consumer behavior has already shifted. Future regulation will likely look to integrate these two markets rather than banning one, potentially subjecting hemp products to similar (though likely lighter) tax structures and age-gating requirements as state-legal cannabis.

Future Outlook and Stakeholder Implications

The trajectory of the over-the-counter vs dispensary cannabis battle points toward a hybrid future. For 2025 and beyond, we anticipate a continued erosion of the dispensary's monopoly on psychoactive cannabinoids. Investors should expect MSOs to continue acquiring hemp assets to blend their portfolios, seeking accretive deals that offer immediate cash flow without the 280E tax burden. For consumers, access will continue to broaden, driving prices down through increased competition.

Future implications for stakeholders in the hemp consumer access battle focus on market consolidation, operational efficiency, and increased profitability through diversified retail channels. Subscribe to the Industry Insights newsletter to get detailed insights on the cannabis/hemp industry and future insights to place your investment strategy on the road to success.