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The degree of lie and the consequences of the lie.
Advertisements can be misleading, but if they go too far can be subject to false advertisement laws. No such check is there for a government participating in propaganda. That government also has the ability to wage war and generally oppress people rather than just sell products.
Propaganda can also be a label applied to 1) true information presented in a certain way, and 2) the same types of information presented about subjects other than the government.
I'll leave others to address point 1, but I think point 2 is interesting. Propaganda can be about economic systems, for example, such as capitalism, which exists outside the realm of government. Propaganda can be about industries, for example when the oil industry tries to mislead us about global warming. I think the common theme is that propaganda has to be about broad, powerful systems having, as you pointed out, serious consequences when they tell you something.
That's an interesting take. It's the lack of regulations that separates propaganda.
I also don't think it's like a bright line that propaganda is necessarily the worst form of dishonesty. The subject matter and intent is huge. If a US president runs ads with cherry picked economy data, you could argue that's propaganda. But that isn't necessarily worse than say a Pharma exec who pushes through and misleading advertises a potentially harmful drug. The exec could potentially get in trouble for this, but you could easily argue his actions were worse.
The potential harm is generally pretty high when we think of propaganda. And governments willing to participate in more flagrant propaganda are likely going to be willing to participate in other unsavory behavior. And use propaganda to affect it.