6 Ways Cannabis Companies Can Preserve Margins by Lowering Costs
Companies in many industries face challenges to maintain their margins while lowering operating costs. And the cannabis industry certainly stands among them. With regulations tightening, competition increasing, and demand for quality products on the rise, it’s essential for cannabis companies to find innovative ways to maintain profitability.
We’re going to take a brief look into six strategies that cannabis companies can adopt to lower operating costs while maintaining or improving their margins.
- Finding processes that can be automated
- Reducing energy usage
- Firming up your supply chain
- Paying attention to quality
- Leveraging data
- Outsourcing non-core business functions
Many of these suggestions are taken from tried-and-true tactics used by businesses across the retail spectrum. Implementing one or more of the tips below can help reduce the trimming away of your net profits.
#1. Automate Processes
Introducing automation to your operation is increasingly necessary for cannabis businesses to reduce operating and labor costs. Quality automation equipment can produce high-quality products with more consistent dosing. Reducing labor costs, while improving the quality of your product (allowing you to resist price reductions) helps keep your margins secure.
Mechanization is often thought to be primarily for the automotive or electronics industries. However, it can be implemented across cannabis cultivation, processing, and manufacturing. For example:
- Cultivators can implement automated irrigation systems and hydroponics. In addition, by using advanced pH and electric conductivity meters, you can reduce labor by having your nutrient data gathered automatically and sent to your computer. For bulk bucking and trimming, we have machines that can replace a tremendous about of labor, outputting several pounds of trimmed flower per hour.
- Cannabis processors and manufacturers have a wide range of automation opportunities. Among the most popular are commercial pre-roll machines. They are engineered to accurately fill over 100 joints in minutes, saving labor costs, improving burn consistency, and reducing weight variances.
- Retail automation often benefits from mechanized packaging equipment used for scaling vape carts, packing gummies, and even adding precise amounts of flowers to barrier bags.
By finding aspects of your cannabis operation where automation allows human labor to be diverted to more essential tasks, you can cut costs, save time, and improve the quality and consistency of your product.
#2. Optimize Energy Efficiency
Let’s face it, the cannabis industry has a reputation for its high energy consumption. Environmental concerns aside, high energy use can usually be tied to significant operating costs. Plants need lots of energy. And although that energy naturally comes from the sun when outside, indoor grow rooms with controlled environments require a lot of electricity to replace natural light.
Thankfully, there are often ways to improve how efficiently your cannabis operation uses electricity.
- When it comes to reducing energy costs as a cultivator, one of the first things that come to most people’s mind is the switch to LED lighting. HID lights such as MH, CMH, and LEC lighting are go-to’s for many commercial gardeners, however, they consume a hefty amount of power. Migrating to new, advanced LED lighting options can greatly reduce your energy consumption and begin cutting costs right away.
- Cannabis manufacturers can reduce energy consumption by optimizing their operating procedures. A good place to start is to reduce equipment downtime (especially if it is powered on and using electricity), decrease the number of trips in and out of your environment-controlled rooms, and maximize the output of your manufacturing equipment.
- Although there are not many obvious opportunities for retail stores and dispensaries to reduce power, some common business practices can help. Little things to get you started include ensuring exterior doors are sealed to prevent the loss of heat or air conditioning, programming automatic lights to dim in low-traffic areas, and applying moderate temperatures during extreme weather.
These measures can significantly reduce energy consumption and costs while promoting sustainability and reducing the company’s carbon footprint. Energy optimization benefits your bottom line, the planet, and your community.
#3. Streamline Your Supply Chain
The cannabis supply chain involves multiple stages starting with cultivation, flowing through processing, and then ending in packaging and distribution. That said, each step along the way also has its own elaborate supply chain needs. Streamlining your supply chain can reduce operating costs by optimizing inventory management, reducing waste, and minimizing transportation and shipping costs. Some tips that apply to cultivators, manufacturers, and retail stores include:
- Nurturing professional relationships. Whether it’s your suppliers, regulators, or logistics partners — it’s a team effort and it pays to go the extra mile. Being on good terms with your business partner can improve efficiency by fostering improved communication across your entire supply chain.
- Especially for larger operations, a robust inventory management system can help prevent stock shortages and excess inventory. Tracking inventory levels and expiration dates can save you money by reducing waste and moving more in-demand products.
- Reevaluating your transportation and logistics options. As transportation costs continue to rise, so do the costs to cannabis businesses. These added costs begin to chew away at your net profit margin.
- If you are a boutique or craft cannabis grower, the “old ways” of gardening and trimming may meet your business needs and brand. Even so, it’s time to toss out the Rolodex and invest in forecasting, data collection, and business planning software (like an ERP) to streamline and ensure that your decisions are informed and backed by data.
Optimizing your supply chain is an exercise in building strong partnerships. At Omega Equipment & Supply we’re proud to mention that this is one of our specialties. If you’re struggling with supply chain issues or are starting a new build and want to ensure that your business has a strong supply-chain backbone, reach out, and let’s have a conversation.
#4. Invest in Quality Assurance
Ensuring the quality of your product is critical to maintaining customer satisfaction and your brand reputation, both of which increase revenue and offset costs. Including robust quality assurance processes in your SOPs can help reduce operating costs by preventing product defects, reducing waste, and minimizing the risk of product recalls. These processes often involve implementing testing and inspection protocols throughout the cultivation, manufacturing, and retail operating procedures.
- It’s imperative, especially with increasing regulations, for cannabis cultivators to build routine procedures to test for potency, purity, and contaminants. Failure to do so could invite a loss of inventory, fines, or a poor-quality crop that requires discounted pricing to sell.
- Cannabis manufacturers and processors should craft step-by-step SOPs to align with local and federal regulations. Offer training programs to ensure their staff and lab technicians can consistently operate and clean equipment saving time and labor costs.
- In many locations, dispensaries and retail stores must follow strict rules surrounding the sale of cannabis products. Again, quality follows a set of organized processes that are consistently followed by employees.
Quality control may seem like a low-priority expense — until a contaminated product triggers a very costly recall. Even a recall on bulk flower can cause friction with your supply chain partners and reduce trust in the quality of your product.
Frequently testing your product, scheduling inspections, staying compliant, and performing audits can save your company a significant amount of money and headaches in the future.
Use Your Data to Grow Your Business
Taking advantage of the data you collect from your grow room or lab can provide valuable insights into your operations and help identify areas for improvement. By leveraging data analytics, companies can optimize operations, reduce waste, and lower operating costs. For instance, data analytics can help companies identify trends in product demand, optimize inventory management, and improve supply chain efficiency.
- Growing healthy plants in a commercial grow room often includes monitoring environmental elements such as CO2 levels, temperature, nutrients, and lighting. Although various types of controllers and monitors are great for cultivation automation, the data can be collected and used proactively. Monitor data can be used to help forecast nutrients, and supplies to provide insights on your grow room environment before it negatively affects the health of your cannabis plants.
- Cannabis labs and manufacturing facilities have to constantly test to ensure they are following good manufacturing practices (GMPs.) Following GMPs make sure cannabis products are free of contaminants and are labeled correctly. Processing facilities should document all their work, maintain a sanitary work environment, and have appropriate staff trained in equipment cleaning and maintenance. Collecting data on these processes and analyzing when tasks are completed can prevent the costly contamination of cannabis products and ingredients.
- If you’re managing a dispensary or retail store, there are several ways to firm up operating processes to save money. First, ensuring your staff schedule is well organized will prevent customers from leaving due to extended wait times. On the other hand, you also don’t want to be overstaffed during off-peak hours.
- As we mentioned above, retail stores should implement inventory control software to ensure popular buds and edibles are available when your customers want them. You’ll also learn which products should be considered for replacement from your menu. In the end, profitability is about moving more products without increasing your operating costs.
Collecting and leveraging data from your greenhouse, manufacturing facility, and retail stores shouldn’t be an afterthought. Instead, start collecting data now, and then look for opportunities to optimize your processes. Procedural clarity within your teams and improved efficiency in your SOPs can reduce costs — and often without any additional investment.
Trim and Outsource Non-Core Operations
As your cannabis operation grows, you can lower operating and labor costs by outsourcing non-core functions of your business. These may include accounting functions, payroll, and human resources.
Using firms that specialize in these areas can help cannabis companies reduce operating costs by minimizing the need for additional in-house staff and infrastructure. Outsourcing can also enable companies to access specialized expertise and resources without incurring significant costs.
Where Do I Begin Lowering Costs?
In 2022, the National Cannabis Industry Association (NCIA) surveyed nearly 400 businesses associated with the cannabis industry. Of those that responded, less than half were generating a profit. The cannabis industry finds itself at a crossroads. It’s both an exciting time for medical and retail cannabis and yet there are as many concerns to address as there are successes. These concerns include a lack of banking, dual-competition from both illicit and retail markets, and high taxation.
While maintaining margins and lowering costs is a challenging task for cannabis companies, it’s necessary for the industry to thrive. By implementing the strategies outlined above, cannabis companies can begin molding their processes to optimize their operations, reduce costs, and maintain profitability.
Take a look at your business and see where it makes sense for you to begin optimizing. Whether you’re introducing automation, reducing energy use, streamlining your supply chain, investing in quality assurance, making data-driven decisions, or outsourcing non-core functions — cannabis companies can continue to adapt to the economic landscape and operate profitably. And if you’re not sure where to start, reach out to the Omega Equipment & Supply Team. We’d love to have a discussion to see how we can help.