The Fall of South Dakota’s Cannabis Industry

On July 1, 2021, medical marijuana became legal in South Dakota. This occurred as the result of a ballot initiative that passed in the 2020 general election.

However,  South Dakota’s journey toward cannabis legalization has been anything but straightforward. South Dakota has had a very complicated past and present when it comes to legalizing marijuana, both medically and recreationally. 

From early failed attempts at approving medical marijuana to the historic 2020 vote that saw both medical and recreational cannabis on the ballot simultaneously, it has been a challenging battle for cannabis advocates in South Dakota. 

Now, it seems that numerous medical marijuana dispensaries in South Dakota are closing their doors.

In this article, you’ll discover the complicated history of legal cannabis in South Dakota, why recreational cannabis failed despite voters’ wishes, and why some medical dispensaries in South Dakota are now closing their doors. 

South Dakota’s Complex History of Recreational and Medical Cannabis Legalization

In 2006, when only about 10 of the 50 states had legalized medical marijuana, South Dakota considered joining them by adding this issue to their ballot. 

However, the ballot did fail, with a close call of 47% in favor and 52% not in favor. Medical marijuana ended up on the ballot once again in 2010, but this initiative also failed at 36% in favor to 63%  not in favor.  It would be another ten years before this issue was back on the ballot.

The existing laws before the changes were made in the last several years surrounding medical cannabis possession were extremely harsh. A medical patient could end up in jail for possessing even small amounts of marijuana. 

In South Dakota, cannabis law history was finally made by being the first state to have voters approve not just the medical cannabis initiative but adult-use cannabis legislation at the same time in 2020. 

But this voter-approved legislation was short-lived as it was unjustly overturned in court. The state Supreme Court unreasonably threw out the measure to legalize adult-use cannabis based on a “single-subject” ruling. The single-subject rule in some jurisdictions’ constitutional law stipulates that some or all types of legislation may deal with only one main issue. One purpose of this rule is to avoid complexity in acts and any hidden provisions that legislators or voters may miss when reading the proposed law. 

Fortunately, protections were provided for the medical marijuana ballot, thanks to voters and the support of the Marijuana Policy Project (MPP). The MPP is the number one organization in the U.S. dedicated to legalizing cannabis. They have helped pass 15 medical cannabis laws and played a leading role in 14 of the 24 legalization states.

Despite the 70% voter and MPP support of medical cannabis in South Dakota, Governor Noem still attempted to delay the medical cannabis law by another year in 2021. 

Is Marijuana Medically and Recreationally  Legal in South Dakota Today?

Luckily, the Governor’s attempt to undermine what voters wanted was not successful. Currently, with the required certificate from a certified medical practitioner due to a qualifying condition, medical marijuana possession for patients is allowed in South Dakota. 

Some of the qualifying conditions for obtaining a certification for medical cannabis in South Dakota include: 

• Cancer
• Epilepsy
• Severe muscle spasms
•  Post-traumatic stress disorder (PTSD)
• Amyotrophic lateral sclerosis (ALS)
• Crohn’s disease
• Multiple Sclerosis
• AIDS / HIV
• Severe Pain
• Severe Nausea

 South Dakota’s registered medical cannabis patients can:

•  Possess up to three ounces of cannabis at a time.
• If authorized, medical patients can cultivate up to two flowering and two non-flowering cannabis plants. Patients cannot cultivate without explicit authorization.

When it comes to medical marijuana dispensaries, manufacturing facilities, testing labs, and cultivation facilities, these all must be state-registered as well, and sales are regulated. 

While medical cannabis was finally legalized, the long battle for better marijuana laws was still being put together by South Dakotans and the MPP on a very tight budget, with Matthew Schweich as its leader and spokesperson. This group hoped that recreational adult-use marijuana laws in South Dakota would finally change for the better. 

Unfortunately, because South Dakota voters approved the original MPP-backed legalization measure in 2020, it forced the most recent measure to recreationally legalize cannabis to lack many of the features of their legalization laws. These features are what can help build more support for this type of measure. The measure included cultivation and possession of cannabis without any regulation on taxation or sales. 

On November 5, 2024, adult cannabis legalization could have finally been legalized for South Dakota residents. Unfortunately, the results fell just shy of this measure passing, with the ballot measure totaling 44% voting yes and 55% voting no on this issue. 

But despite the legalization of medical cannabis and the ongoing battle to legalize recreational marijuana, some South Dakota dispensaries are closing down.

The Closing of Several South Dakota Dispensaries

After medical marijuana became legal in South Dakota, dispensaries started gearing up and eventually opened their doors to medical cannabis patients. Soon after, intense dispensary competition, especially in metro areas like Sioux Falls, began causing problems. 

For some dispensaries, especially smaller businesses, the new dispensaries popping up all over these metro areas meant less and less business as dispensaries were in a race to the bottom when it came to pricing. 

Now, at least eight dispensaries in South Dakota have closed their doors beginning around February of 2024 due to concerns about regulations, competition, the race to the bottom with pricing, and the ever-declining medical marijuana cardholder numbers. 

After being legalized and the registration of medical cannabis patients began, cardholder numbers increased quickly, with numbers peaking near the beginning of 2024. 

In the winter of 2023, according to South Dakota’s Data and Statistics report, close to 13,000  medical marijuana cardholders were registered. As of December 2024, those numbers have declined to less than 12,000 cardholders instead. From February 2024 to December 2024 alone, there was about a 15% decrease in registered medical marijuana cardholders.

Some of this decline could be because of the increasing availability of cannabis alternatives, such as smokeable flowers or hemp-derived edibles advertising similar effects to medical products. Or, it could be that some were hoping recreational marijuana would be legalized. 

However, the declining cardholder numbers and the oversaturation of dispensaries opening that continued expanding rapidly are likely the biggest reasons that South Dakota is seeing a fall in their cannabis industry. 

State medical regulations may also be part of the reason South Dakota is seeing many of its dispensaries closing. 

The annual price of maintaining the dispensary licenses has recently increased by a whopping 70%. The annual fee went from about $5,000 to $9,000 annually. 

Cannabis businesses also cannot deduct most of their business expenses, such as rent and employee wages. Fortunately, they can deduct cost-of-business expenses. As such, this requires significant tax preparation to properly comply with these tricky regulations, and many dispensaries are paying significant tax preparation bills because of this. 

The South Dakota medical cannabis rules and regulations also prohibit advertising, including social media posts. Social media posts made by dispensaries can lead to warnings being issued by the state. Social media posts that depict the use of cannabis can also lead to warnings, cease and desist letters from the state, or even a temporary and permanent shutdown. Unfortunately, it has put many medical cannabis facility owners in a constant position of fear as they try to navigate the intricate laws surrounding medical cannabis in the state of South Dakota. 

All of these little things adding up have made operating a successful dispensary business in South Dokata challenging for many of these cannabis facility owners, likely being the cause of closures for some. 

The Future of South Dakota’s Cannabis Industry

With the recreational marijuana legislation not passing recently like many voters may have hoped, it’s likely there could be an increase in medical marijuana cardholders because of this. Some people may have originally held off getting a medical marijuana card in hopes it would pass recreationally, meaning they’re more likely to apply for cards soon with no recreational marijuana legalization in sight. 

However, the number of cardholders that have already dropped off has likely done significant damage to South Dakota’s cannabis industry—and especially to its smaller dispensary owners. 

Boosting the number of cardholders could be a beacon of hope for the South Dakota medical cannabis industry, though. This could be accomplished by expanding the list of qualifying conditions for obtaining a medical marijuana card. 

The addition of an industry representative to South Dakota’s Medical Marijuana Oversight Council could also help improve the situation for medical cannabis industry businesses. 

Takeaways

Despite the initial success of medical cannabis finally being legalized in South Dakota, the state’s cannabis industry is now facing serious challenges. 

Fierce competition, burdensome regulations, a decline in medical marijuana cardholders, and increasing financial pressures have led to the closure of multiple dispensaries in a matter of months. 

The failure to pass recreational legalization has further complicated the industry’s future, leaving medical cannabis as the only legal option. 

However, hope remains. Expanding qualifying conditions for medical marijuana, advocating for industry-friendly regulations, and eventually legalizing marijuana recreationally could help stabilize South Dakota’s cannabis market. Whether these changes come in time to save some of these smaller, struggling businesses, however, remains to be seen.