How Do Dispensaries Decide Their Prices?

A guide for new dispensary owners.

dispensary prices iStock / MysteryShot

Many factors determine which dispensary a customer will choose. Location, selection, and atmosphere are common reasons to choose one place over another, but the prices at a given shop also control whether customers will come back or choose a different store.

If you’re a dispensary owner who is new to the world of retail, the process can be overwhelming. A lot depends on your store’s ability to properly price items. After all, this is where the profits are coming from. If done improperly, you’re bound to get set back.

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Customers may even travel further than necessary to avoid your shop if it means saving some bucks at a different dispensary.

Determining how to price items at your dispensary can be difficult. According to Blake Marchand, Owner and Founder of March and Ash dispensary in California, pricing is based on the overhead costs of running a business in a heavily-regulated industry. These costs range from staffing (and paying competitive wages), human resources, legal assistance, and delivery operations among others.

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“Understanding what other retail operators in the region are providing is important but customer feedback is a key market tactic,” said Marchand.

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There’s a lot to juggle when determining prices and the success of your operation depends on your ability to bring in sales. Let’s look further into how dispensaries price their items.

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Market Research is Key

Companies depend on market research in all industries. This is where you gather information about what your target customers want and need, what your competitors are offering, and how you can play a part in the industry.

For Seed & Smith, a Colorado cannabis dispensary, market research looks like a number of things.

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“Seed & Smith analyzes market trends by utilizing our wide landscape of stores that we wholesale our products to. Gathering information from hundreds of other stores allows us to determine a fair market price for the products we create and ultimately sell. Additionally, using maps provided by the census in regards to household income allows us to fine-tune our pricing to meet the needs of the community in which we reside,” said Mike Lempert, Director of Logistics at Seed & Smith.

Understanding your competition and the communities you will be selling to is important. If your prices are disproportionate with the household incomes of the community you’re selling in, you’re going to run into problems. You’ll also run into problems if your products are the most expensive out of the local selection. If other stores have your items at a lower price, you can bet others will choose to shop there first.

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Jaan Tonisson, the Product Manager for Cannabis One, which owns the Joint dispensary in Colorado, has a similar approach.

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“We conduct market research, looking at analytics for the state of Colorado. We then look at our assortments and the various levels of products. From there we determine what is the best price we can offer this to our customers,” said Tonisson. “If it’s competitive in the marketplace and profitable for the store, then we price it there. This is also the basis on which we determine whether or not to carry a product. If it’s not something that offers a good deal to both the customer and the store, we won’t carry it.”

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Knowing how your competitors are pricing items and what customers are willing to spend will help immensely in determining prices. It’s important to stay competitive with shops around you. Dispensaries are not a form of retail where selling products at double the price they were purchased at will work. Prices need to reflect the market in the area and this will require diligence.

Other Pricing Factors

Pricing products to be competitive in the marketplace is crucial to success. But marketplace competition is not the only factor that goes into determining prices.

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The item also “needs to be profitable for the store and its price point needs to fit in the assortment of other items in the category,” explained Tonisson. “The final piece is the actual cost to us.”

This can be hard to determine, so it’s good to have a team. Tonisson works alongside a purchasing manager and a co-general manager to help determine prices.

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“All these decisions are made post-sampling, but pre-purchasing, as we vet an item to be viable before purchasing. We’ll then buy a small quantity to test both sales potential as well as if our pricing model works,” said Tonisson.

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Other factors that go into pricing range based on the specifics of the dispensary and the state it’s located in. For example, Seed & Smith dispensary is vertically-integrated, which offers more opportunity to understand manufacturing costs.

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“Having this information, along with a deep understanding of the market allows us to price our products competitively,” said Lempert. “We utilize factors like profit margins, length of time spent on the shelf, availability, and rareness in the marketplace to further dial in our pricing.”

Seed & Smith’s general manager of retail takes care of this process to determine the best pricing for products.

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The Bottom Line

In a highly-regulated industry, the costs of operating a business can become high. The urge to use keystone price tactics, where you price items at twice the price they were purchased at, must be resisted. Pricing cannabis products at a dispensary requires diligence and a lot of time spent analyzing the competition and the community you’re selling to.

Unless your dispensary is the only one in a given area, people are going to compare prices. There are even databases to compare prices available which means customers don’t even have to step foot in your shop to know the prices are too high. You may lose customers before you’ve even had a chance to win them over with your warm atmosphere and friendly budtenders.

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Dispensaries need someone, or a team of people, to spend time carefully conducting market research. Use analytics from the state, census data, price comparison databases, and all other resources at your disposal to create a picture of what the market looks like, and then price your products accordingly.

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How Do Dispensaries Decide Their Prices? was last modified: by