The Clerks director clawed back money from the making of the film by embarking on a US-wide tour screening the film and giving talks to audiences, according to The Wrap.
Smith told the audience at the Produced By Conference: "I knew the movie wasn't commercial. I knew that if somebody bought this $4 million (£2 million) film, they'd put $10 to $15 million (£6.1 million to £9.2 million) into marketing it, and it wouldn't make that money."
He added: "I can't compete in a world where it's all about the first three days in theatres."
Smith bought the rights to his own film for $20 (£12.24) at the Sundance Film Festival in January, announcing that he would shun conventional ways of promoting the project in favour of using social media.
Red State centres on America's fundamentalist Christian fringe. Following its limited US release earlier this year, it is due to go on general release in the country on October 19.
A UK release date has not yet been set.