In the cannabis industry, few things are more crucial than pricing. It impacts everything—from a dispensary’s profitability to the accessibility of medicinal products for patients. With over 25 years of experience in this industry, including my work with premium brands like Papa & Barkley, I’ve seen firsthand how important it is to get pricing right.
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Pricing strategies aren’t just about maximizing profits; they balance profitability with patient compassion. In this article, I’ll share my perspective on dispensary pricing, navigating regulations, and some innovative strategies shaping the future of cannabis pricing.
Understanding the basics of dispensary pricing
Pricing in dispensaries isn’t as simple as applying traditional retail models. In many industries, retailers operate with a standard markup, known as keystone pricing, which usually means doubling the wholesale cost of a product. However, in the cannabis industry, many dispensaries work with a 100 percent markup on wholesale prices. And it’s not just that—some even charge slotting fees that brands need to factor into the MSRP (Manufacturer’s Suggested Retail Price).
I’ve found that several factors, including production costs, state regulations, and market demand, influence cannabis pricing. Many dispensaries must make 100 percent off wholesale prices to justify the overhead and risks of running a legal cannabis business. But ultimately, the consumer ends up paying for all these costs.
My approach to pricing strategy
One thing I’ve learned in my career is that cannabis brands need to be flexible and anticipate price compression as the industry matures. When I co-founded Papa & Barkley, we faced high production costs initially because the legal cannabis market was still new. But as more infrastructure developed, cannabis became cheaper, and we had to adjust our prices accordingly.
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In my experience, many dispensaries and brands haven’t addressed price compression correctly. There’s still this “prohibition mindset” where scarcity is emphasized, and people think they must charge a premium. But as more cannabis becomes available, the industry needs to shift away from scarcity-driven models and embrace abundance.
Pricing for profitability vs. patient access
One of the biggest challenges I see in the cannabis industry is finding a balance between profitability and patient access. While the legal market has provided safer access to cannabis, it has also priced many medical patients out. Cannabis isn’t covered by insurance in the U.S. like it is in countries such as Germany, so patients are often left struggling to afford the products they need.
In states like California and Colorado, the legal environment has pushed prices higher, which has made cannabis less accessible to patients in need. It is disappointing that the industry has primarily focused on profits rather than compassion. We need ethical pricing models that ensure patients can access cannabis without financial strain.
The impact of regulations on pricing
State regulations add another layer of complexity to dispensary pricing. The amount of cannabis tax varies widely from state to state, but it’s often so high that it drives up retail prices significantly. In my experience, these taxes make it hard for legal dispensaries to compete with the unregulated market. Savvy cannabis consumers often find cheaper alternatives outside of the dispensaries.
The taxing is so demanding in some states that I’ve seen consumers turn away from dispensaries entirely. It’s not that they’ve stopped using cannabis; they’ve just found other ways to get it. If we want the legal market to thrive, we must reform taxation and regulatory policies to make pricing more realistic.
The challenge of consumer pricing
When it comes to identifying reasonable pricing, consumers often look at potency as the primary measure of value. Right now, in the emerging cannabis market, it’s difficult for consumers to understand if they’re getting a good deal truly. They tend to equate higher potency with better value, but that’s not always true. Where those cannabinoids come from should matter.
Distillate-based products with high potency might not offer the same value as all-natural products with similar or lower potency. The quality of cannabis and how it’s grown or processed is still largely misunderstood by many consumers, which makes it hard for them to evaluate products beyond the price per milligram of THC.
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Because of this focus on potency, pricing is often dictated by retailers still falling into the trap of pricing based solely on milligrams. This is where the industry needs to evolve. We should start separating brands into good, better, and best categories based on more than just potency. Factors like organic farming, all-natural ingredients, the overall experience of the product, and sustainability should play a more significant role in determining pricing. Unfortunately, this value-driven pricing has not become widespread, but I believe it’s essential for the industry’s future.
Embracing innovative pricing models in cannabis retail
To stay competitive, we need to adopt innovative pricing models that reflect the growing availability of cannabis. I’ve long advocated for moving away from the scarcity models of the past. The industry has to start embracing the abundance that legal cannabis offers.
For example, we still use concentrates and refer to them as “dabs,” but there’s a missed opportunity to encourage consumers to use concentrates more liberally, like aromatherapy. I believe the future of cannabis will involve more accessible ways of consuming products, and that will influence how we price them. Instead of selling cannabis gram by gram, we need to start thinking about offering it in larger, more affordable quantities.
Future trends in cannabis pricing
As cannabis becomes more abundant, I predict pricing models will evolve to reflect that shift. We’re not going to be selling cannabis in small quantities forever. I see a future where consumers are using cannabis more freely, without the prohibition-era habits that have made people feel like they need to conserve every gram.
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Federal legalization will also significantly impact pricing. If cannabis is legalized at the federal level, we could see substantial cost reductions due to lower taxes and fewer compliance fees. This would make cannabis more accessible to everyone, not just those who can afford to pay premium prices.
Conclusion
Pricing in the cannabis industry is complex and rapidly evolving. From the challenges of adjusting to price compression to the regulatory hurdles that drive up costs, navigating this landscape requires both flexibility and foresight. My experience has taught me that while profitability is essential, we can’t forget about the patients who rely on cannabis for their well-being. As the market matures and more infrastructure comes online, we must embrace abundance, innovation, and ethical pricing to ensure long-term success.
For those of you working in the cannabis industry, I advise staying informed about pricing trends and being ready to adapt. The industry is changing fast, and leaders who are willing to embrace innovation and think ethically about pricing will be the ones who succeed in the long run.
*This article was submitted by a guest contributor. The author is solely responsible for the contents.