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Dispensary Profit Margins and Falling Cannabis Prices

Dispensary Profit Margins

Dispensary owners often find themselves in a difficult position when it comes to properly setting the prices on their products. Supply and demand fluctuate far more dramatically than in many other industries, new legal regulations can suddenly manifest which require significant compliance cost, and competition is fierce.

What is the Average Dispensary Profit Margin?

The average profit margin for recreational and medical cannabis dispensaries is typically between 15 to 21 percent after taxes. Although dispensary profit margins can vary based on business climates and state or provincial regulations, recreational stores and businesses that sell both adult-use and medical cannabis typically have the highest profit margins.

Of course, you’ll have to account for the cost of opening a dispensary when calculating potential profit margins.

How Much Does a Dispensary Make in Sales?

It depends on several factors, including the size of the market you’re operating in as well as your competition and competitive strategy. In 2017, roughly 85 percent of dispensaries made more than $100k, while 27 percent brought in more than $1 million in revenue.

How Much Does a Dispensary Owner Make?

How much you’ll make as a dispensary owner depends greatly on your market size, the competitive landscape, and, ultimately, how much revenue your dispensary is generating per year. For example, if your dispensary is generating $5 million-plus annually, you could easily make an annual salary of $500,000 or more.

How to Maximize Your Dispensary Profit Margin Despite Falling Prices

Today we’re going to take a look at a few fundamental issues your dispensary will likely face when it comes to appropriately setting your retail marijuana prices in Colorado or elsewhere. Here are some options you should consider in order to help keep your profit margin healthy over time:

Tip 1: Embrace Competition

Since the initial introduction of medical marijuana to the general population a number of years ago, marijuana prices in Colorado and most other states have already fallen by up to as much as 40%, as the blue-sky advantage begins to dissipate and the realities of supply and demand set in. Only one thing is certain; that competition will grow increasingly fierce in the future.

Your dispensary needs to adapt to the changing marketplace, and fully embrace the spirit of competition to succeed. This means delivering a superior customer experience, high-quality products, maintaining a strong local marketing presence, and everything else that being an agile and competitive business entails.

Tip 2: Offer Product Differentiation

One way most dispensaries can increase their basic profit margins is by engaging in product differentiation. Invest in flower strains that no one else in the area provides; what you lose on yield you may recoup by way of novelty factor, strain fans, or other developments.

Consider providing cannabis formulations not easily available on the black market, such as live resin, shatter, or wax – prices on these types of products are higher, and less resistant to market stress. In fact, cannabis concentrates are the one class of products that has actually slightly risen in value over time; concentrated marijuana prices in Colorado are up several percent in recent years.

Tip 3: Develop New Product Lines

Along with investing in product differentiation, you may additionally want to consider diversification into entirely new product lines as well. Profits in the edibles market have remained higher than those of most plain flower due to the enhanced regulatory burden inherent in manufacturing them - think legal compliance requirements related to labeling and packaging, for example. Continued demand for new product lines along with the less volatile nature and lower competition in these markets provide your dispensary a great opportunity to keep profits high for the foreseeable future, even as marijuana prices in Colorado continue to fall.

Tip 4: Fine-tune Operations

An easy, direct way to ensure a dispensary’s profitability is to make sure its daily operations are as streamlined and efficient as possible. Cannabis retail owners must always stay on top of the day-to-day functions of their business in order to identify opportunities for reducing costs, which is why implementing operations best practices is so crucial. Creating a system of checks and balances to ensure no one on staff is ever left unsupervised with product or cash helps prevent the risk of internal theft.

When hiring, offering a higher hourly rate can help attract better-qualified applicants and reduce employee turnaround. And investing in technology and tools that simplify manual processes - like a dispensary POS system that automatically syncs data into the menu board and website, reducing the need for repetitive data entry – helps ensure accuracy while decreasing the likelihood of costly mistakes.

Tip 5: Stay On Top of Inventory

Inventory control is central to all retail operations. Because cannabis retailers have the added pressure of fulfilling government regulatory requirements, it’s especially critical that dispensaries closely monitor product inventory or they risk putting their businesses in legal jeopardy. Adopting systems like a dependable POS helps management access accurate inventory data in real-time, enabling them to perform inventory audits and meticulously report discrepancies as stipulated by the government.

Processes like product prepacking - weighing and packaging bulk product into smaller units prior to selling – speed up consumer sales transactions at the register, while also helping retail owners establish standards for the accurate and consistent management of inventory.

TIP 6: Spend Wisely

While the old saying “you have to spend money to make money” certainly applies to cannabis retail, it’s essential to a dispensary’s profitability that costs stay reigned in wherever possible. Cannabis retail owners must regularly monitor expenses and be prepared to make adjustments accordingly, particularly in areas that have a broader impact on the business overall. A few ways to control costs at your dispensary include outsourcing critical non-retail operations to experienced outside professionals, and using sales data to inform your product assortment and marketing activities can result in less wasteful spending in the long run.

Tip 7: Set the Right Price Point

Perhaps the most important aspect of setting price points at a cannabis dispensary is the competitive research process. Make sure your organization is doing all it can to keep its finger on the pulse of the market, and make your strategic decisions accordingly. This means checking up on competitors’ prices, learning about black market averages in your area, reviewing online internet sites and comment boards where people discuss cannabis pricing – even potentially looking at what is going on in neighboring states; in short, doing everything you possibly can to ensure that you have an accurate grasp of current trends related to marijuana prices in Colorado. The more research you perform, the better a judge you will be of where you should set your prices in order to maximize your bottom line.

Keeping these seven fundamental principles in mind will help you best position your dispensary for success. Never stop engaging in competitive research, do everything you can to promote your brand, wisely choose the type of products you intend to sell, implement systems to improve your operations and be strategic about inventory, and your dispensary can enjoy a healthy bottom line over the years to come. While marijuana prices in Colorado will likely continue to fall in the short term future, dispensaries which take this approach will be insulated from the worst effects of the market.

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