Cannabis Product Pricing

How to Price Cannabis Products at Your Dispensary

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Cannabis product pricing

Pricing is a critical and complicated process for legal cannabis retailers. Price too low and you’ll lose profit; too high and you’ll lose customers.

And every time you get a new cannabis product or an existing product’s wholesale price changes, you have to manually re-work pricing to maintain your profit margins.

The risk of human error is great, and increases as your product selection grows or if your dispensary employs out-the-door pricing.

We’ve created a simple cannabis pricing calculator that allows dispensaries to easily and consistently answer the everyday question:

Based on wholesale costs, standard markups, and tax rates, how much should I charge customers for this product?

cannabis product pricing guide

How to use the dispensary price matrix generator

Simply enter your marijuana dispensary’s tax rates and desired markup percentages to generate your customized pricing matrix. This tool can be used for all your cannabis products — pre-rolls, tinctures, topicals — as well as CBD and non-cannabis goods.

Watch the video below and read on for quick tips for using the product pricing tool, as well as detailed explanations to help you successfully use the calculator.

  • Double-check your state and local tax rates before generating the price matrix. The information put out is only as good as the information put in.
  • Your entered values will not be saved after the tool is closed, so be sure to download your price matrix in step 3 before exiting the tool or closing your browser tab.
  • See the "Help" and "About" tabs on the tool if you need more assistance.

Definitions

Markup = The rate you typically apply to the wholesale unit cost of a product to arrive at an appropriate per-unit selling price.

Pre-tax price = The cost you're charging a customer for an item. Pre-tax price = Wholesale cost + markup.

Wholesale cost = The cost the retailers pays to purchase the product from a distributor or wholesaler.

Out-the-door pricing = A pricing tactic where taxes are included in the product’s list price, so the price you see is the total price you pay.

Post-tax price = The actual price a customer pays. Post-tax price = Wholesale cost + markup + taxes.

Step 1: Taxes

Enter your store’s tax rates (all of them, individually, without adding) into the price matrix generator.

Tax rate options

  • Rec - applies to sales of recreational, or adult-use, cannabis products only

  • Med - applies to sales of medical cannabis products only

  • M&R - applies to sales of both recreational and medical marijuana products

  • NoC - applies to sales of non-cannabis products/accessories products only

  • All - applies to sales of all products

Enter your rates into the applicable area only, using numbers only (i.e. don’t enter the % symbol). Leave any unneeded boxes empty.

For example, if you have a 4% tax that applies to all cannabis, or THC, products (both med and rec), and also a 2.5% rate for accessories only, then enter 4 into the first box for M&R, and 2.5 into the first box for NoC and leave the rest blank.

If you have more than one rate, for example, both 7% and 15% rates for recreational cannabis products only, then enter 7 in the Rec 1 box and 15 in the Rec 2 box.

cumulative taxes, cannabis dispensary

It is important for accurate tax calculation that multiple rates applying to the same type of products be entered separately (like in the example above). Do not add these rates together into the same box.

Flowhub Customers: Navigate to Flowhub Manage > Location Management > Taxes & Fees to verify your tax rates.

Cumulative taxes

If your state requires cumulative taxes, such as California or Michigan:

  1. Enter rates in the order that they’re calculated. For example, if you have two rec rates that are cumulative, then Rec 1 will be calculated before Rec 2.

  2. Click to check the box for cumulative under the applicable tax rate column. If you have only one tax rate, you do not need to check the cumulative tax box.

Flowhub Customers: Navigate to Flowhub Manage > Location Management > Cumulative Taxes to verify your tax amounts and cumulative order.

Step 2: Markup and Pricing Mode

Enter the following details about how your store does product markups and what mode of cannabis prices you want to calculate.

Markup

“Standard markup” means the normal markup rate you would typically apply to the wholesale unit cost of a product to arrive at an appropriate per-unit selling price.

For example, if a chocolate bar cost you $10 per bar, and you use a 100% markup, that means you sell the product, pre-tax, at $20 per bar.

Enter your markup percentage for Rec, Med, and NoC/accessory products in the calculator using the whole number (i.e. 100, 120).

Depending on your store preferences, volume, and the cannabis market in your state, your markup could be higher or lower than the common 100%. You can also use different markups for your product types (rec, med, and non-cannabis) to lower prices on competitive items, or increase margins on specialty products.

Best Practice:

Standardize markup as part of your inventory SOPs!

Pricing mode

You have two options for pricing mode:

  • Pre-tax: Choose this pricing option to show how you should price your items to achieve a whole dollar amount before taxes are applied.

  • Out-the-door (OTD): Choose this pricing option to show how you should price your items in order to achieve a post-tax whole dollar amount. Note that due to complicated math and rounding, some specific combinations of tax rates and pre-tax prices may still result in a post-tax price ending in “.01.”

OTD pricing is popular in mature markets such as California, Colorado, Massachusetts, Michigan, Oklahoma, Oregon, and Washington, but is also enticing for cannabis businesses with limited cash on hand, or during a coin shortage. OTD is also considered a customer-centric approach to pricing.

California only: AMP & Arm's-length

After selecting which pricing mode you’d like, you have three more components to add to account for excise tax, Average Market Price (AMP), and arm's-length.

  • Enter the CA Excise Tax Rate: In CA, cannabis excise tax is collected by wholesalers and charged directly to retailers as part of the total cost of an order’s invoice. Enter your excise tax rate here; do not enter it with your other taxes in Step 1.

  • Enter the CA Average Market Price (AMP) Markup: The AMP markup as of May 2021 is 80%, so enter "80" here. This rate is subject to change so be sure to verify the rate before finalizing your price matrix. Note the AMP markup does not apply to not-arm's-length orders, or those of non-cannabis products.
  • Arm's-length: Arm’s-length means the product was purchased by an external supplier not affiliated with the retailer (i.e. not vertically-integrated). Check the box to calculate the exact excise tax amount paid to the “arm’s-length” supplier based on the pre-tax wholesale cost of that unit in the "cost" column. This tax paid is then accounted for in the pre-tax price of the product, and is kept independent from the standard markup and other tax rates applied to the product. This is done to calculate exact pricing necessary to prevent over- or under-charging CA excise tax to customers purchasing items sourced from an arm's-length supplier.

We recommend creating and download two price matrixes:

  1. Arm's-length box checked: Use this price matrix to price products from external suppliers.
  2. Arm's-length box NOT checked: Use this price matrix to price products from internal, vertically-integrated suppliers.

Step 3: Price Matrix

Now that you've inputted all your information, you can see the price matrix populate in step 3 of the tool. Take a peek to make sure it looks accurate based on the details you entered, then be sure to download the matrix as your information will not save.

  1. Review at your price matrix to ensure accuracy.

  2. Click the three vertical buttons in the top right corner of the price matrix.

  3. Select how you want to download (you can also export to Google Sheets).

  4. Save the matrix and use it to accurately and consistently price your products.

  5. Update/re-run your matrix if your standard markups, pricing mode, or taxes change.

How to put the price matrix into action

Once you have your price matrix, use it anytime pricing or repricing products is required, including:

  • receiving new products from a vendor
  • changes to vendor's wholesale prices
  • cannabis tax rate changes
  • making necessary adjustments to your own products’ retail prices
  • increasing/decreasing markup percentages


Scenario 1: Price new recreational products

Let's say you receive a new recreational inventory product, a 10-count box of limoncello gummies. According to the invoice from the supplier, the cost of that product is $12.50. Look at the “Rec Cost” column in your matrix and scroll down to find a cost of $12.50. Look to the right for the rec pre-tax price. This is the cost + markup. The post-tax price shows what the customer will pay for that product, including taxes.

Scenario 2: Start doing OTD pricing

You want to do out-the-door pricing so you don’t have to deal with coins anymore and to make your pricing more clear-cut for customers. If your new rec inventory product, a 10-count box of limoncello gummies has a cost of $9.50, scroll down to find the closest number in the “Rec Cost” column. Slide to the left to see the pre-tax price (cost + markup). The pre-tax price + taxes will equal your post-tax price, which in the case of OTD pricing, will be a nice whole number.

Flowhub customers: Add prices to your inventory

Here’s how to use the matrix to ensure pricing for your Flowhub inventory is accurate.

  1. Log into Flowhub.

  2. Go to Manage > Inventory.

  3. Find the inventory product you need to update. Select “Edit.”

  4. In the “Edit Inventory Item” window, enter your pre-tax price from the matrix into the “Price” box.

  5. Verify that the post-tax price auto-updated in the window matches the matrix.

  6. Repeat for all products.

Disclaimer: This tool is provided for informational purposes only and without warranty of any kind. It is not intended to provide legal or financial advice.

Taylor

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