How Cannabis Retailers And Brands Can Grow Profits In Competitive Markets, Experts Weigh In

Growing revenue in the cannabis space is getting harder, with costs remaining high and competition that’s intensifying. This has prompted a challenge that’s been looming within the industry for quite some time – how to make the math work?

This question has framed a panel at The IgniteIt Cannabis Capital Conference this past June, moderated by Sandra Bergman, founder of ESBE Marketing. On the stage, Bergman was joined by panelists Lauren Carpenter, CEO of Embarc, Matthew Melander, president at Sun Theory, David Leider, president at Holistic Industries and Rocco Del Priore, president and co-founder of Sweed.

Making The Numbers Work

A common message emerged through conversation even though each speaker addressed the issue from a different perspective. These days, protecting margins is about tightening operations, questioning long-held assumptions and giving customers reasons to stay loyal beyond price.

Embarc’s Carpenter said that changing outdated regulations is one of the biggest ways to improve profitability, citing some California jurisdictions that still required armed overnight security, even when it wasn’t necessary, adding thousands of dollars of cost a year in costs for each store.

Embarc worked with cities and police departments to update the rules, she continued. By replacing outdated security requirements with modern technology, the company significantly cut operating costs.

“These businesses are retail businesses,” Carpenter said. “Cannabis dispensaries face less theft than cell phone stores…We’re saving millions of dollars a year.”

Sun Theory’s Melander said that for the company, one of the biggest margin drivers is inventory discipline. He explained aims for roughly a few week inventory turn, keeping cash available instead of locking it up in products sitting on shelves.

Technology and experienced managers are what is behind the replenishment mechanism. His advice is to “buy what you need. Hold what you need.”

Holistic Industries’ Leider called the cannabis world a “bizarro world,” and that traditional business assumptions don’t always apply.

He explained that in the cannabis space, financial priorities are different, having in mind taxes, regulation and operating pressures that are unique.

“You really need to focus on what dollars you have and how you’re looking at that through the entire business,” he said, adding that cash flow deserves as much attention as EBITDA.

Winning On Loyalty, Not Discounts

A trap retailers across the country seem to be falling into repeatedly is competing primarily on discounts, Del Priore said.

Instead of racing to the bottom, as Del Priore described the trend, retailers should put emphasis on loyalty, as it’s a strong margin driver according to Del Priore. Building membership programs with exclusive product drops, VIP events and unique experiences is a way to go.

“I think there’s going to be a continued investment… in programs that focus on retention as a way to get away from this race to the bottom of discounts,” he said.

Carpenter noted discounting is a reflection of fear rather than strategy.

“You drive three miles, and there’s a billboard: 99% off,” she said. “That math does not math, y’all.”

In Embarc, as part of its loyalty program, customers are provided with exclusive experiences, while the company’s self-service “bodega” stores allow them to browse products freely.

“Customers enjoy the ability to shop products just like anything else,” Carpenter said.

Melander highlighted that maintaining quality is non-negotiable. “The ingredients are the key to the whole thing,” he said.

The company spends months finding the right cultivation partners before entering a new state, making sure the products meet its quality standards, Melander explained. “We’d rather do Dom Pérignon than Two Buck Chuck,” he said.