diff --git a/pkg/channel/jetstream/dispatcher/dispatcher_test.go b/pkg/channel/jetstream/dispatcher/dispatcher_test.go
index d5cb61618..45b8bc4d3 100644
--- a/pkg/channel/jetstream/dispatcher/dispatcher_test.go
+++ b/pkg/channel/jetstream/dispatcher/dispatcher_test.go
@@ -112,7 +112,13 @@ func TestDispatcher_ReconcileConsumers(t *testing.T) {
 		UID: subscriber2UID,
 	})
 
-	err = d.ReconcileConsumers(ctx, *configNew, true)
+	err = d.ReconcileConsumers(ctx, *configNew, false)
+	if err != nil {
+		t.Fatal(err)
+	}
+
+	newConfig := createChannelConfig(nc)
+	err = d.ReconcileConsumers(ctx, *newConfig, true)
 	if err != nil {
 		t.Fatal(err)
 	}
diff --git a/pkg/channel/jetstream/dispatcher/message_dispatcher.go b/pkg/channel/jetstream/dispatcher/message_dispatcher.go
index a6244c542..f46dfdf20 100644
--- a/pkg/channel/jetstream/dispatcher/message_dispatcher.go
+++ b/pkg/channel/jetstream/dispatcher/message_dispatcher.go
@@ -70,10 +70,7 @@ type NatsMessageDispatcherImpl struct {
 }
 
 func NewNatsMessageDispatcher(logger *zap.Logger) *NatsMessageDispatcherImpl {
-	sender, err := kncloudevents.NewHTTPMessageSenderWithTarget("")
-	if err != nil {
-		logger.Fatal("Unable to create cloudevents binding sender", zap.Error(err))
-	}
+	sender, _ := kncloudevents.NewHTTPMessageSenderWithTarget("")
 	return NewMessageDispatcherFromSender(logger, sender)
 }
 
@@ -111,7 +108,7 @@ func (d *NatsMessageDispatcherImpl) DispatchMessageWithNatsRetries(ctx context.C
 		retryNumber = int(meta.NumDelivered)
 	}
 
-	if retryNumber <= retriesConfig.RetryMax {
+	if (retriesConfig != nil) && (retryNumber <= retriesConfig.RetryMax) {
 		lastTry = false
 	} else {
 		lastTry = true
@@ -212,8 +209,11 @@ func (d *NatsMessageDispatcherImpl) processDispatchResult(ctx context.Context, m
 			zap.Any("dispatch_resp_code", dispatchExecutionInfo.ResponseCode))
 
 		code := dispatchExecutionInfo.ResponseCode
-		if code/100 == 5 || code == nethttp.StatusTooManyRequests || code == nethttp.StatusRequestTimeout {
-			// tell JSM to redeliver the message later
+		if retryConfig == nil || retryNumber >= retryConfig.RetryMax {
+			// no more retries, just ACK
+			result = protocol.ResultACK
+		} else if code/100 == 5 || code == nethttp.StatusTooManyRequests || code == nethttp.StatusRequestTimeout {
+			// NACK, tell JSM to redeliver the message later
 			result = protocol.NewReceipt(false, "%w", err)
 		} else {
 			result = err
diff --git a/pkg/channel/jetstream/dispatcher/message_dispatcher_test.go b/pkg/channel/jetstream/dispatcher/message_dispatcher_test.go
index 8ec3bd22e..c5bacd289 100644
--- a/pkg/channel/jetstream/dispatcher/message_dispatcher_test.go
+++ b/pkg/channel/jetstream/dispatcher/message_dispatcher_test.go
@@ -74,6 +74,12 @@ const (
 	ackWait      = 30 * time.Second
 )
 
+var (
+	retryCount    int32 = 3
+	backoffDelay        = "PT1S"
+	backoffPolicy       = v1.BackoffPolicyLinear
+)
+
 func TestDispatchMessage(t *testing.T) {
 	testCases := map[string]struct {
 		sendToDestination         bool
@@ -90,6 +96,7 @@ func TestDispatchMessage(t *testing.T) {
 		expectedReplyRequest      *requestValidation
 		expectedDeadLetterRequest *requestValidation
 		lastReceiver              string
+		delivery                  *v1.DeliverySpec
 	}{
 		"destination - only": {
 			sendToDestination: true,
@@ -792,6 +799,89 @@ func TestDispatchMessage(t *testing.T) {
 
 			lastReceiver: "reply",
 		},
+		"error response and retries": {
+			delivery: &v1.DeliverySpec{
+				Retry:         &retryCount,
+				BackoffDelay:  &backoffDelay,
+				BackoffPolicy: &backoffPolicy,
+			},
+			sendToDestination: true,
+			header: map[string][]string{
+				// do-not-forward should not get forwarded.
+				"do-not-forward": {"header"},
+				"x-request-id":   {"id123"},
+				"knative-1":      {"knative-1-value"},
+				"knative-2":      {"knative-2-value"},
+			},
+			body: "destination",
+			eventExtensions: map[string]string{
+				"abc": `"ce-abc-value"`,
+			},
+			expectedDestRequest: &requestValidation{
+				Headers: map[string][]string{
+					"x-request-id":   {"id123"},
+					"knative-1":      {"knative-1-value"},
+					"knative-2":      {"knative-2-value"},
+					"prefer":         {"reply"},
+					"traceparent":    {"ignored-value-header"},
+					"ce-abc":         {`"ce-abc-value"`},
+					"ce-id":          {"ignored-value-header"},
+					"ce-time":        {"ignored-value-header"},
+					"ce-source":      {testCeSource},
+					"ce-type":        {testCeType},
+					"ce-specversion": {cloudevents.VersionV1},
+				},
+				Body: `"destination"`,
+			},
+			fakeResponse: &http.Response{
+				StatusCode: http.StatusGatewayTimeout,
+				Body:       io.NopCloser(bytes.NewBufferString("destination-response")),
+			},
+			expectedErr:  true,
+			lastReceiver: "destination",
+		},
+		"error response term message": {
+			delivery: &v1.DeliverySpec{
+				Retry:         &retryCount,
+				BackoffDelay:  &backoffDelay,
+				BackoffPolicy: &backoffPolicy,
+			},
+			sendToDestination: true,
+			sendToReply:       true,
+			header: map[string][]string{
+				// do-not-forward should not get forwarded.
+				"do-not-forward": {"header"},
+				"x-request-id":   {"id123"},
+				"knative-1":      {"knative-1-value"},
+				"knative-2":      {"knative-2-value"},
+			},
+			body: "destination",
+			eventExtensions: map[string]string{
+				"abc": `"ce-abc-value"`,
+			},
+			expectedDestRequest: &requestValidation{
+				Headers: map[string][]string{
+					"x-request-id":   {"id123"},
+					"knative-1":      {"knative-1-value"},
+					"knative-2":      {"knative-2-value"},
+					"prefer":         {"reply"},
+					"traceparent":    {"ignored-value-header"},
+					"ce-abc":         {`"ce-abc-value"`},
+					"ce-id":          {"ignored-value-header"},
+					"ce-time":        {"ignored-value-header"},
+					"ce-source":      {testCeSource},
+					"ce-type":        {testCeType},
+					"ce-specversion": {cloudevents.VersionV1},
+				},
+				Body: `"destination"`,
+			},
+			fakeResponse: &http.Response{
+				StatusCode: http.StatusBadRequest,
+				Body:       io.NopCloser(bytes.NewBufferString("destination-response")),
+			},
+			expectedErr:  true,
+			lastReceiver: "destination",
+		},
 	}
 	for n, tc := range testCases {
 		t.Run(n, func(t *testing.T) {
@@ -863,12 +953,23 @@ func TestDispatchMessage(t *testing.T) {
 				headers = utils.PassThroughHeaders(tc.header)
 			}
 			msg := nats.Msg{}
-			noRetries := kncloudevents.NoRetries()
-			backoffLinear := v1.BackoffPolicyLinear
-			noRetries.BackoffPolicy = &backoffLinear
-			backoffDelay := "5s"
-			noRetries.BackoffDelay = &backoffDelay
-			info, err := md.DispatchMessageWithNatsRetries(ctx, message, headers, destination, reply, deadLetterSink, &noRetries, ackWait, &msg)
+
+			var retryConfig kncloudevents.RetryConfig
+			if tc.delivery == nil {
+				retryConfig = kncloudevents.NoRetries()
+				backoffLinear := v1.BackoffPolicyLinear
+				retryConfig.BackoffPolicy = &backoffLinear
+				backoffDelay := "5s"
+				retryConfig.BackoffDelay = &backoffDelay
+			} else {
+				retryConfig = kncloudevents.RetryConfig{
+					RetryMax:      int(*tc.delivery.Retry),
+					BackoffPolicy: tc.delivery.BackoffPolicy,
+					BackoffDelay:  tc.delivery.BackoffDelay,
+				}
+			}
+
+			info, err := md.DispatchMessageWithNatsRetries(ctx, message, headers, destination, reply, deadLetterSink, &retryConfig, ackWait, &msg)
 
 			if tc.lastReceiver != "" {
 				switch tc.lastReceiver {