Cannabis companies must decide between two primary distribution models: regional (wholesale), where licensed distributors or producers ship in bulk to retailers or intermediaries, and direct-to-retail, where the brand or producer sells straight to dispensaries or—even DTC where regulations allow—to consumers.

Regional (Wholesale) Distribution

Pros

• Economies of Scale & Lower Cost: Buying in bulk reduces per-unit cost; wholesalers sell at discount compared to retail pricing.
• Broad Market Reach: Regional distributors can serve numerous retail locations—dispensaries, wellness centers, delivery services—via one network.
• Inventory & Logistics Expertise: Specialized firms manage warehousing, quality control, and compliance, ensuring smooth supply.
• Compliance Assurance: Distributors ensure testing, tracking, and legal transport, critical as missteps impact the entire supply chain.

Cons

• Limited Brand Control: Producers lose influence over shelf presence, pricing, and consumer interaction. Retail partners often prioritize their own branding.
• Dependence on Partners: Sales volume depends on retailer performance and market placement.

Direct-to-Retail (DTR) Distribution

Pros

• Brand & Pricing Control: By selling directly to dispensaries—or even consumers—brands set MSRP, package presentation, and relationships.
• Customer Data Insight: Direct channels yield richer information about buying habits, enabling tailored marketing and product development.
• Enhanced Consumer Experience: Whether in-store or via delivery, it allows brands to craft curated experiences and loyalty.

Cons

• Higher Overhead & Complexity: Requires investing in e-commerce, delivery infrastructure, compliance efforts—even storefront operations if selling B2C.
• Limited Reach: Without robust logistics or multiple licenses, breadth of distribution may be smaller.
• Regulatory Variability: Many jurisdictions forbid producer-to-retailer direct selling or restrict delivery, complicating compliance.

Model Suitability

When Regional Wins

• Smaller Brands & New Markets: Without capital for infrastructure, regional distributors offer access and compliance support.
• Regions with Strict Licensing: In states like California, distributors are legally required to enable producer-to-retailer transfers.
• Efficiency Focus: Companies wanting stable supply channels and logistics handled centrally benefit from regional reach.

When Direct-to-Retail Excels

• Established or Premium Brands: Brands that can manage operations and want full control over margin and consumer perception thrive with direct models.
• Delivery-Friendly Markets: Licenses in states like Nevada, California, or Ontario allow direct shipping and online retail.
• Data-Driven Strategy: Brands collecting purchase data directly can iterate faster and personalize offerings.

Hybrid Approach: The Rising Trend

A hybrid or omnichannel model blends strengths: regional distribution for broad reach, plus direct-to-retail (or delivery) in core markets. This strategy:

• Mitigates market risk by avoiding reliance on one channel.
• Maintains brand control where most valuable (e.g., flagship regions).
• Uses data insight from direct channels while sustaining regional scale.

In Review

Neither model universally outperforms the other. Regional distribution suits companies seeking scale, compliance ease, and who prefer to offload logistics. In contrast, direct-to-retail distribution empowers brands with control, data, and customer connection—ideal for firms ready to shoulder the investment. Many operators find combining both yields the best balance: maximizing reach and brand value.