Tax-Inclusive or Pre-Tax? How Dispensaries Should Display Prices

Few things frustrate a dispensary customer more than reaching the register and finding the total is much higher than the price on the shelf. Cannabis taxes are a big reason why. That leaves every dispensary with a choice: show prices before tax, or build taxes into the displayed "out-the-door" price?

General information, not legal or tax advice. Cannabis tax rules are set by each state, and sometimes cities and counties, and they change. Confirm with your state's tax and cannabis regulators.

Why cannabis taxes create sticker shock

In many states, cannabis carries special excise taxes on top of regular sales tax. Point-of-sale provider Flowhub notes that general sales tax is typically a few percent, while some states impose cannabis excise taxes as high as 35%. Combined, the gap between shelf price and register total can be large.

Option 1: Pre-tax prices

The shelf price is the price before taxes; taxes are added at checkout.

Pros:

• Prices look lower at a glance, especially next to competitors who also show pre-tax prices.
• Percentage discounts are simple to apply.
• Matches how many states describe the tax. Washington's Department of Revenue, for example, explains that since 2015 its cannabis excise tax has been charged in addition to the retail price, rather than included in it.

Cons:

• Customers can be surprised at the register.
• Budtenders spend time explaining totals.

Option 2: Out-the-door (tax-inclusive) prices

The shelf price already includes taxes, so it's what the customer pays.

Pros, according to Flowhub's overview:

• No surprises at checkout.
• Round totals mean less change-making and faster cash transactions.
• Shorter lines.

Cons:

• Competitors showing pre-tax prices may look cheaper.
• Percent-off deals can produce odd totals; dollar-off or set-price deals work better.

What to check in your state

Before choosing, confirm:

1. How your state describes its cannabis taxes: in addition to the price, or part of it.
2. Whether receipts must show taxes separately, which affects how you set up your POS either way.
3. Local taxes that can vary by city or county.
4. Fee rules. In California, the SB 478 "junk fee" law requires displayed prices to include all mandatory fees other than government-imposed taxes, according to compliance publication Cannabis Regulations AI. Taxes may be shown separately, but any mandatory service or platform fee must be built into the shelf price.

Label it clearly either way

Whichever approach you choose, say so on the tag and in the store:

• Pre-tax: "+ tax" or "Taxes added at checkout" on every tag.
• Out-the-door: "Tax included" or "Out-the-door price" on every tag.

A store-wide sign at the entrance helps, and so does matching the same language on your online menu. Consistency matters more than which approach you pick.

Keep the shelf and register in step

Tax-inclusive pricing adds a calculation step: if a tax rate changes, every displayed price changes. Pre-tax pricing avoids that, but promotions still have to match. In both cases the safest setup is one source of prices feeding both the tag and the register.

How digital tags help

Digital shelf tags make it easy to change the label wording across the whole store at once, and to update every price if a tax rate changes. PriceTaglet started with coin and bullion stores, but the same setup works for a dispensary: E-Ink tags, a plug-in hub and a browser dashboard where you set prices and choose how the tag looks. Automatic tax calculation for cannabis isn't built yet.

We're looking for our first dispensary pilot partner to help design tags and pricing tools around real dispensary needs, including how taxes are shown. If that's you, reach out through our early access page.

Sources

• Flowhub, Pros and cons of out-the-door cannabis retail prices
• Washington Department of Revenue, Cannabis excise tax reference
• Cannabis Regulations AI, California junk fee law and cannabis
• PriceTaglet, How it works