How Can Cannabis Companies Survive Inflation - And Keep Prices Low?

The good news is, Snoop Dogg was reportedly able to increase his blunt roller’s salary to help him deal with the rising costs of inflation.

The bad news is not every cannabis company is an institution like Snoop or has access to his resources. 

According to the U.S. Bureau of Labor Statistics, in July, the consumer price index rose by 8.5 percent over the previous 12 months. Consumers are feeling the rising prices across almost every sector of their daily lives, but by and large, dispensary prices have not risen like so many other consumer goods. 

Research suggests this may be temporary. 

According to a survey by GreenGrowth CPAs in early August, 1 in 4 cannabis operators said they plan to raise prices in the near or immediate future to counter inflation. 

But short of raising prices, what moves can cannabis companies make to deal with inflation?

Think smaller (for now)

As the COVID-19 pandemic began to take hold coast to coast in early 2022, cannabis was deemed an essential service in states across the country. At the same time, cannabis consumption surged as consumers looked for ways to pass the time on lockdown or after being laid off. In mature legal cannabis markets, this led to overproduction, which has kept cannabis prices from rising. It has also hurt the profit margins of cannabis producers.

According to Andrew Livingston, the director of economics and research for the cannabis law firm Vicente Sederberg LLP, for cannabis cultivators, one tactic moving forward can be to reevaluate production. 

“You may need to lay off some staff and cut down on production in order to survive, and then you can expand when things are in a better situation,” Andrew Livingston of the cannabis law firm Vicente Sederberg said in a Rootwurks webinar earlier this month. 

For retail cannabis companies, inflation could be a good reason to ease up on expansion, especially in saturated cannabis markets like Oregon, which has well over 700 dispensaries for a population of about 4.2 million. 

Focus on what works 

There has been tremendous innovation in cannabis in recent years, from new intake methods to a growing emphasis on terpenes and cannabinoids beyond THC and CBD. 

But unless a company has a game-changer innovation or a blockbuster cannabis strain to develop, it’s probably wiser to focus on what is already working at a time of rising operational costs. 

Look at your best-selling items and which sales do best on which days, and plan accordingly. You may be more comfortable taking chances when things get back to (basically) normal.  

Look for efficiencies 

“We’re seeing a lot of increasing costs and variable costs, like labor and others, and if you can become more efficient, then you may be able to deal with the wholesale price decline by reducing the degree to which inflation is increasing those expenses,” Livingston said.  

Because cannabis is still illegal at the federal level, there is only so much that companies can do to cut costs. Cannabis producers can’t purchase raw flower from cheaper out-of-state producers or run their operations in states where the cost of doing business is lower. 

Reducing the range of products sold or produced is one way to deal with rising costs and supply chain issues. Companies can also move to a remote work model for positions that are not plant-touching or which can be performed well remotely. 

And while layoffs may be an appealing solution when times are tough, they should be done with precision to avoid decreased morale and production. 

Focus on best practices 

The tasks associated with cannabis compliance adherence can also constitute a large portion of the workload for cannabis companies - time that many of these professionals would likely prefer to spend on other tasks. 

One way cannabis companies can remedy this is by using Standard Operating Procedures (SOPs). SOPs are carefully-compiled documents that outline the steps companies need to take to meet specific compliance requirements, a road map, or cliff notes for compliance. 

These documents allow companies to swiftly and efficiently carry out compliance adherence tasks directly according to the letter of the law. 

But these best practices don't just improve efficiency when inflation is driving a rise in labor costs. They can also help prevent safety hazards and violations, which can be the last thing a company needs to navigate inflation. 

Stay the course

Legal marijuana faces no shortage of challenges ranging from competition with the legacy market to falling wholesale prices and the roadblocks posed by federal prohibition. 

But the industry is also defined by adversity, hard work, and big dreams. There is also the knowledge that change (and growth) are probably right around the corner. 

Here’s hoping the same goes for inflation.

Image sourced from Shutterstock

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.