In certain areas, dispensaries are a dime a dozen – in Colorado, there are now more pot shops than McDonalds and Starbucks. This requires businessmen and women in the marijuana trade to carefully price their products. But this is a task that isn’t limited to those in the cannabis industry (obviously!) – no matter what you’re selling, your price will heavily dictate your level of success.
Competitive Pricing, Defined
When a business decides to set a price for a good or service, they have several options. They can set the price below the competition (in hopes of attracting enough customers to make up for any lost revenue); they can set the price at the same level as the competition; they can set the price above the competition. Doing the latter requires customers to get something in return (a higher quality product or a service that is more inclusive, for example).
Does this mean pricing your pot only requires you to know what your competition is charging? Not exactly. The best businesses consider a variety of aspects.
Per the Entrepreneur, companies will benefit themselves by taking into consideration certain specifics before they set a price. These include:
The direct cost of your product or service
You can sell your product for less than you shell out to produce it, but this will cost you money (especially if you do it over any length of time).
The indirect cost of your product
Everyone in the cannabis industry knows that green comes with plenty of red (in the form of red tape). There are all sorts of indirect expenses that come with running a dispensary (like licensing fees, insurance, rent, employee salaries, etc.). These must be considered when setting a selling price.
The breakeven point
The breakeven point happens when you don’t lose or make money – it’s all a wash of no profit or loss. It’s important to know what you have to sell in order to break even; if you’re selling too little, it’s time for a new business plan.
The price of the competition
A dispensary down the street that’s selling vape pens for half the cost of yours will likely generate more sales. Sure, there’s something to be said for customer loyalty – if your customers have always bought from you, they may continue to do so (especially if you offer a great loyalty rewards program). But charging more than your competition usually results in a downturn of sales. This is especially true if you don’t offer anything that warrants your high prices.
The current state of the industry
Of course, putting your finger on the state of the industry is also important – there’s a reason beepers and fax machines aren’t sold at lofty prices (or at all). Cannabis is an industry that is lucrative and one that continues to grow. But it’s also one where the competition has wildly increased. Keeping your ear to the ground involves knowing what’s new, what’s novel, and what’s hot in marijuana goods. Cannabis customers continue to chase more convenient highs (and, in some cases, higher highs). You must adapt to this demand.
Other Things to Consider
Cannabis, like any proper part of commerce, is affected by supply and demand: when the demand outweighs the supply, dispensaries can charge more than when the opposite is true. This is often the case when a dispensary is the only show in town – people aren’t often willing to drive in search of cheaper prices; they’ll simply go to whatever is close to home.
The supply versus demand also rings true if your dispensary has something that others don’t – a rare strain, a new tincture, exclusive CBD products (which are always popular). If you got it, you can flaunt it at any price you want……assuming customers crave it bad enough.
The black market is another issue to consider (especially when we’re talking about basic buds and not super fancy concoctions).
In the perfect world, the passage of recreational legalization would render the underground market null and void (at least in terms of pot). That hasn’t been the case – illegal weed continues to thrive.
The reason for its success involves a few different variables. Legalization typically allows people to grow at home – the idea is that they’ll grow what they can smoke. But some people are crossing the line: they’re growing more than they’d ever smoke and then exporting it for illegal sale. That keeps the pot pipeline into the underground open and assures an illegal marketplace that is plenty stocked.
Illegal competition is still competition and some people turn away from dispensaries because dealers are cheaper. They don’t add tax, which creates a huge price gap between illegal sellers and legitimate dispensaries. The flipside is that people don’t really know what they get when they buy from a dealer (catnip or Cat Piss?) and some simply won’t go through a dealer because it’s illegal. Consumers also won’t have access to the latest in marijuana technology when buying on the streets. These factors are enough to stop some people, but not all.
Trends are important too.
In California, the cost of legal weed in January 2018 was double what people could get from a local dealer – the recreational industry started with a bang but not a bang for your buck. And this trend has continued.
The good news for consumers is that soaring costs are predicted to change over the next six months to a year. This prediction is based on what has happened in other states – the cost of weed started high, leveled out, and then fell dramatically.
That’s not necessarily good news for dispensary owners, however. Weed is indeed a good investment, but there is a certain novelty in new legalization. Initially, the lines to dispensaries are out the door, customers buy the max they’re allowed, and they’re willing to shell out big bucks for new experiences. This doesn’t wear off entirely, but it does abate somewhat. If business owners want to stay competitive, they must adjust to this fluctuation. Stocking shelves with new products (and keeping them priced competitively) is one way to maintain customer interest.