I understand that the flag has a historical connection—it was designed in 1775 (during the American Revolution) by the American general and politician Christopher Gadsden. During revolutionary times a flag with this kind of a symbolism is fine, but it makes little sense to use it in times of peace and stability.
When the libertarians use such a flag, they risk sending out the signal that they are extremely dogmatic in their thinking, full of hatred for all non-libertarians (which means vast majority of the population), and alienated from the society. Your philosophical, economic, and political thinking might be good, but very few people will come forward to support your cause if your calling card contains the image of a rattlesnake with its fang bared and the text “DON'T TREAD ON ME”. People have a poor sense of history—most of them may not even know about the connection with the Gadsden flag.
Some libertarian scholars, I have noticed, use the image of a hemp leaf as their flag. Perhaps they think that that the hemp leaf stands for liberty and good life. I believe that people should be free to consume the intoxicants of their choice, but to use a hemp leaf as the flag for a social and political movement is not a good strategy as it creates the impression that this is a movement of the hedonists, by the hedonists, and for the hedonists.