There’s a fine line all cannabis businesses have to strike when it comes to pricing their products for Wholesale. If you price your products too high, you risk driving away customers. On the other hand, if you price your products too low, you can miss out on potential profit. Neither side of this equation is ideal, so let’s take a closer look at how to price cannabis products the right way.
Choose the Right Approach
There are two popular pricing approaches that are worth considering before choosing how to price your cannabis products.
With the Cost Approach, you’ll break down all of the costs that were necessary to create: acquire, and prepare a cannabis product for sale. You’ll take the following costs into account:
- Excise Tax (around 24% of wholesale cost)
- Local Taxes (rate varies across cities)
- Federal and Statement Taxes
- Variable Costs (such as budtender wages, packaging and labeling costs, and marketing expenses)
- Fixed Overhead Costs (such as rent, utilities, and POS software)
When using the Cost Approach, you’ll want to take note of what your “break-even” point is. Your break-even point is the price where you’ll make enough to cover the costs necessary to acquire the product. Knowing what your break-even point is can make it easier to decide how much of a profit you want to make, and what you have to charge to make it.
The Market Approach focuses on market research. Take a look at competitive pricing for the same, or similar, products that you’re selling. Determine what the average price of a product is amongst your competitors and make that average your ceiling price. By not surpassing that price, your pricing will be competitive and hopefully lure in fans of those products. The Market Approach is a popular method to use for pricing flower.
Whether you use a Cost Approach or Market Approach to price your inventory, utilizing the right technology can make finding the optimal price for your cannabis products a whole lot simpler. There are tools that can help you determine what the right price for a cannabis product is.
For wholesale vendors, we suggest using Confident Cannabis’ Market Insights, to see the average price of flower by THC range, cultivation environment (indoor/outdoor/mixed light), and time of year. Subscribers to the Basic and Pro plans receive real-time, up-to-date wholesale pricing trends, allowing them to benchmark their price and quality against the rest of their state and set prices with confidence.
The cannabis supply chain in each state is very different, which is why these Wholesale Market Insights dashboards are specific to each state, including California, Oregon and Oklahoma (new!).
For retailers, we like Flowhub’s Price Matrix Generator because it bases pricing recommendations on a variety of factors. The Price Matrix Generator takes wholesale costs, standard markups, and tax rates into accounts. It’s important to remember to keep your store’s tax rates and cumulative takes top of mind when pricing products.
For market-wide retail pricing trends, Headset is a great resource. For example, this 2020 report by Headset looks at price variance data and compares it across segments and categories. This analysis can help cannabis businesses determine what types of products perform best for sales and promotions and which products customers are most likely to pay premium prices for.
Through the Pricing Analytics Dashboard, you learn more about how other brands are pricing their flower per pound and per gram. You can also see what the retail ready flower price is per ⅛ oz.
Confident Cannabis’ Market Insights dashboard also shares market volumes by production types in the last six months and how flower is performing by terpene range and indica/sativa/hybrid classification. Using this data to inform your pricing decisions can help ensure you’re not undercharging and lessening your profit or overcharging and scaring off customers.