Category: Blog , Customer Retention , Operations

A Guide for Marijuana Dispensaries on Pricing Cannabis Products

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Retail is not an easy job. Just ask. . . literally anyone. You are tasked with dealing with all kinds of customers throughout the day and it can be trying at times. It’s a job that demands thorough planning, patience and product knowledge. The better your understanding of the cannabis industry and regulations, the easier it is to optimize pricing cannabis to ensure your dispensary has long-term success. 

Pricing Strategy Factors

Cannabis pricing can be difficult even for the most experienced of retailers. Experienced retailers are used to the same pattern of buying a product, increasing the margin and selling for a profit. However, cannabis is a highly regulated industry. These restrictions lead to some additional considerations for marijuana dispensaries when pricing cannabis products. 

Regulatory costs need to be funded by consumers and weigh heavily into a dispensary’s pricing decisions. Prices can vary from season to season based on supply and demand. Additionally when states consider tax changes to cannabis, e.g. California raising cannabis taxes, this will also play a factor in how to price products. 

As more marijuana dispensaries receive their licenses, retailers will be forced to price their products competitively in order to retain their customer base. Depending on the state your dispensary resides in, you may have regulations regarding how products can be branded.

So how important is pricing cannabis to your profit margins? Well, an overall improvement to your dispensaries optimization of 1% can lead to an average boost of 11.1%. Dispensary POS software can provide valuable analytics that can help you improve your profit margins on consistently popular products.

Strategies for Pricing Cannabis

When determining the best strategy for your dispensary, it is important to be aware of state and federal guidelines. Typically, there are some common strategies dispensaries utilize. Some of the most common ones are: Price Skimming, Penetration Pricing and Value-Based Pricing. 

Price Skimming

Price skimming and Penetration Pricing may be the easiest of the three to learn because it requires very little customer outreach and research. For example, an extraction company is able to enter the market using an at-home extractor. Facing very little competition at first, said company can set an initial price at $599. 

Price skimming is often used for the launch of a product which faces little or no competition. Early adopters are willing to pay higher prices for the newest stuff. This is not a good long-term strategy as competitors will soon launch rival products.

Penetration Pricing

Penetration pricing can be thought as an inverse idea. Instead of appealing to the newest gadgets or features, this pricing strategy aims to attract customers to a new product by offering lower prices during release.

This can help smaller companies trying to make their way into a saturated market by allowing customers a chance to purchase similar products or services for a lower rates. A common example would be a subscription service that offer 2 months of free service or the way banks offer free checking accounts for new customers. 

Value-Based Pricing

The last strategy for pricing cannabis--Value-Based-- doesn't sit as easy as the other two because it is determined more by the customer’s perception of value and then using said information to determine a price point. This requires a great deal of research that can be done with surveys, interviews, polls, etc. 

You need to step into your customer’s shoes to understand their viewpoint. Caregivers, patients and recreational users will all have different motivations for using cannabis. Many customers would opt to choose for ease of access over product selection. Researching into your local consumer base can help identify the value your dispensary brings to the community.

Contributed by Richard Sanchez

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