Cannabis shops in border towns are raking in sales from neighboring states, and it could push more states to legalize marijuana

• Illinois just legalized adult use cannabis, and people from other states are flooding in to try out the products.
• "Illinois's adult-use marijuana program gives us a chance to collect tax revenue from the residents of Wisconsin, Missouri, Iowa, and Indiana," Illinois Gov. J.B. Pritzker joked at his State of The State speech in late January.
• Illinois' example "should lend further credence to the domino effect thesis," said Cantor Fitzgerald analyst Pablo Zuanic. The domino thesis predicts that when one state legalizes cannabis for adult use, its neighbors may quickly follow.
• Illinois isn't the only place seeing lots of sales to people from out-of-state.
• "I think with a single stroll through our parking lot, you'll see a diversity of license plates from other places," said Thomas Winstanley of Theory Wellness, a Massachusetts-based cannabis company with a dispensary close to both the New York and Connecticut borders.
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Illinois's governor has recently taken to gloating about an unusual tax he's able to impose on citizens of neighboring states like Wisconsin and Indiana.

That's thanks to Illinois's decision to legalize recreational cannabis sales for adults, starting on January 1, and the ample number of people from those states who've since flooded Illinois to buy marijuana, legally.

"Illinois's adult-use marijuana program gives us a chance to collect tax revenue from the residents of Wisconsin, Missouri, Iowa and Indiana," Governor J.B. Pritzker joked in his State of the State speech last month.

The data backs him up. Since January 1, people from out of state have made nearly a quarter of all cannabis purchases in Illinois, accounting for some $8.6 million in sales. Illinois levies a hefty tax on adult-use marijuana sales that varies depending on the THC levels and additional local taxes, but can go up to 41.25% for some products in Chicago.

Colorado's border-town dispensaries are booming

While Missouri has a medical cannabis program, residents in Wisconsin, Iowa, and Indiana lack access to either medical or adult-use cannabis.

Illinois isn't the only state benefiting from out-of-staters looking for medical treatments, or just recreational products.

Colorado, where cannabis has been legal for everyone over 21 since 2014, two years after a ballot measure to legalize, provides another good example. Dispensaries located on the state's borders saw sales grow 32% last year, while those in the rest of the state increased sales 17%, according to cannabis data provider Headset.

Cannabis isn't legal in neighboring states like Wyoming, Nebraska, and Kansas, while others permit it only for medical use.

Though it's legal for people to purchase cannabis outside their state, taking cannabis products over state lines (even between two states that have adult-use programs) is illegal. That means customers buying cannabis in 'border towns' should - by law- use up their cannabis products before coming back home.

Cantor Fitzgerald analyst Pablo Zuanic said that the substantial tax dollars coming in from out-of-state residents may push neighboring states to consider legalization.

States may not want to miss out on cannabis revenues

The substantial amount of sales coming from neighboring states, Zuanic said, "should lend further credence to the domino effect thesis," or the idea that when one state legalizes, neighboring states may follow in its steps.

This thesis, Zuanic noted, may eventually play out in the Northeast, where just a few months ago the governors of New York, New Jersey, Connecticut, and Pennsylvania came together in an effort to coordinate regulations surrounding cannabis legalization and the vaping crisis.

"The goal is to collaborate with one another, to share resources and thinking collectively," New York Gov. Cuomo said at a summit regarding the efforts in October. "We don't want someone driving from New York to Connecticut or from New Jersey to New York to buy marijuana and then drive back and possibly be using it in the car, so to the extent that regional coordination makes sense and its politically practical, we want to do that."

Massachusetts, which is surrounded by four states with medical-marijuana programs (New Hampshire, Connecticut, Rhode Island, and New York), seems to also be reaping the benefits of its location.

Thomas Winstanley of Theory Wellness, a Massachusetts-based cannabis company with a dispensary just miles from the borders of New York and Connecticut, told Business Insider that he's seen customers from all 50 states in the US represented in his store.

Just by taking a stroll through the dispensary's parking lot, Winstanley said, "you'll see a diversity of license plates from other places."

The Great Barrington location used to be a medical dispensary but was among the first handful of locations to receive an adult-use license in January of last year.

People from New York and Connecticut head to Massachusetts

The brand's location in Great Barrington is the closest dispensary to New York and Connecticut. It's just 10 minutes from the New York border and 20 minutes from Connecticut. New York City is a 2-hour-drive away

Winstanley said that when he talks to the customers at this location, he meets everyone from "little ladies who come up from Brooklyn" to veterans living in upstate New York looking to get access to particular cannabis products they can't get back home.

Winstanley said that Theory Wellness opened its Great Barrington location hoping it would do well, but that they couldn't have planned for the number of customers they've received after receiving their adult-use license.

The company receives around 40% to 50% of its total orders from dutchie, an online marketplace that lets customers book pre-orders before coming in to pick up their products, said Winstanley. That allows Theory Wellness to see how its dispensary is doing compared to the around 600 other dispensaries that use dutchie nationwide.

The national average cart size on dutchie, Winstanley told Business Insider, is $89.33 but Theory Wellness' border town location does around twice as well, at an average $186.

Likewise, while the nationwide average volume of pre-orders on dutchie stands at around 40 a day for a store, Theory Wellness does tenfold that, taking in around 425 pre-orders on a daily basis.

Since opening its Great Barrington store for adult-use sales, Winstanley said, the location has averaged $4.6 million in sales per month, which includes around 1,000 transactions per day.

'The customer is responsible for adhering to the laws'

"This is a narrative that I think you would find fairly common in legal states close to non-legal states," Winstanley told Business Insider. "I think when people are looking at locations for cannabis companies in emerging markets, there is definitely a trend to look toward high population areas and access to high population density areas."

Despite this, Winstanley said that Theory Wellness is careful to not advertise across state lines because of the complexities of federal versus state laws when it comes to cannabis advertising in the US.

Instead, he sticks to "old school tactics" like billboard advertising and print ads with media publications in Massachusetts. Google ads or other forms of online advertising are a "huge challenge," Winstanley noted.

Theory Wellness says it lets customers know that the cannabis they're buying is supposed to be consumed in Massachusetts.

"Ultimately, the consumer is responsible for adhering to the laws once they leave our store," Winstanley said.

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