How to Run a Successful Dispensary Despite Falling Cannabis Prices and Big Competition

how to run a successful dispensary

The legal cannabis market is growing at a rapid pace. According to Grand View Research, the worldwide market will be worth $146.4 billion by 2025, with a large portion of that coming directly from the legal and medical marijuana markets in the United States. For cannabis entrepreneurs and dispensary owners, this growth presents a lot of opportunities. However, as many retail stores, growers, and other companies operating within the marijuana industry have found — with big opportunity comes big competition.

As we see more states continue to legalize adult-use cannabis, retail stores are forced to operate with slimmer margins, more local competition, and larger multi-location dispensary businesses consolidating the market. Meanwhile, cannabis prices are falling from too much production and not enough demand.

According to a recent study, all legal markets in the U.S. are experiencing lower prices year-to-year, with established states like Washington, Oregon, and Colorado experiencing the largest drops.

Falling Cannabis Prices
Source: Marijuana Business Daily

As newer legal markets continue to mature, they are likely to see similar dips in average pricing as well. The more established recreational marijuana markets are already dealing with oversupply challenges, particularly in states like Oregon where lax production laws and legalization in surrounding states (California and Washington) have impacted the market. Combined with suppliers consistently improving their operational know-how to increase yield and quality over time, nationwide cannabis prices are moving in one direction: down.

All of this amounts to a very competitive landscape for retailers. Competing on price can often feel like a race to the bottom in states like Washington, Oregon, and Colorado. It’s more important than ever that marijuana dispensaries use price management solutions to help them be more agile with pricing changes and strategies. In time, we may start to see similar trends emerge from states like California, Nevada, and Michigan.

With that said — there are some simple steps that cannabis retailers can take to shield themselves from the increase in competition and falling prices. By focusing less on competing on price (although this will always be a challenge), and focusing more on providing a top-notch experience to customers, dispensaries can bridge the gap and separate themselves from the pack.

Additionally, retailers may opt to acquire competing dispensaries to improve cash flow and market share.

In this post, you’ll learn how to run a successful cannabis dispensary despite these growing challenges.

    1. Choosing a location

    how to choose the best dispensary location

    It’s a cliché thing to say, but it’s true: location is everything. The first step to opening a dispensary is to spot the perfection location.

    If you don’t have a location that provides customers with easy access to your store, you’re going to have a hard time convincing people to come in. It’s also important that you find a place where the demographics and competition levels suit your needs. In fact, your location may be the defining factor in the overall success of your cannabis business.

    For stores that are already open, your location is already set in stone. For those that are looking to open a location soon, there are a few key traits that you should look for to ensure that you set yourself up for success.

    • Ease of access. A location that is easy to walk to will bring in customers—even better if you are located in an area close to public transportation, have sufficient parking, and wheelchair accessibility. Also, being able to get in and out during high-traffic hours will make them more willing to come back. When customers feel like visiting your store is a chore, it’s a hard sell to ask them to come in.
    • Local demographics. What does the local populace look like and what are their attitudes towards cannabis? Populations that skew younger tend to buy more cannabis and are open-minded to the shift in culture a new dispensary might bring to the neighborhood. Although senior citizens are the fastest growing group of recreational marijuana consumers, you might want to avoid choosing a location that is surrounded by retirement homes. Be mindful of the safety of the local community and be aware of nearby schools or other potential reasons why a cannabis storefront might be frowned upon.
    • Location of competition. In most legal states, you’ll find that competition is inescapable in any mid-sized city. However, your location in comparison to the competition is where you can set yourself apart. Make sure that your dispensary isn’t too close to any existing stores. The more of the city that you can “corner” with your location, the easier it will be to earn business in the beginning and down the road.
    • City zoning and regulation considerations. You can’t open a cannabis dispensary in locations that are not zoned for it, obviously. But you also have to account for the probability of undergoing zoning changes at a later date. Keep a close eye on local laws and ordinances. In legal states, it is not uncommon for a city to restrict cannabis stores completely, or only to a limited number of locations. They also may pass their own laws that govern where legal retail stores can be within city limits.

    The importance of location can’t be understated for any retail business that relies heavily on foot traffic. It’s even more important in the legal cannabis industry with high competition and falling prices. Ensuring that you give the right people an easy way to buy cannabis will play a huge role in the long-term success and viability of your dispensary.

    2. Following compliance standards

    Dispensary regulations

    Cannabis is still illegal under federal law, so every legal state has different laws that govern the way that cannabis dispensaries can do business. These laws include where the stores can be located, how much product can be sold, quality controls for the products, and different security measures that must be in place in-store. We understand the risks of being out of cannabis compliance and focus heavily on meeting government track and trace requirements in every state with legal cannabis.

    Understanding how current state laws will affect your operations is critical. This applies to laws on the federal, state, and local level. Keep a close eye on new regulations and laws coming down the pipeline. Being able to spot them well in advance and take measures to prepare for the changes will have an effect on your business.

    To stay ahead of the curve, it may be a good idea to advocate for your industry in local governments. Among many politicians, there can still be the misguided feeling that the cannabis industry is “seedy” or lesser than other industries due to years of misinformation and prohibition. Having a well-spoken, well-read advocate that can speak up in front of councils and in town halls can be a great way to positively shape the perception of your dispensary business (and the cannabis industry as a whole) in your local area.

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    3. Engaging your local community

    Dispensary differentiation through activism

    According to a 2015 Nielsen report, 66% of those surveyed say that they would spend more money on socially conscious and sustainable brands. Differentiate your dispensary further as an important staple of your local community by promoting initiatives to educate, engage, and benefit potential future customers. This not only raises awareness of your brand but also works to counteract negative stigmas toward cannabis that may exist in your community.

    Here are some examples of community building initiatives for your dispensary:

    • Run a food drive and offer discounts for donations of non-perishable foods.
    • Sponsor fundraising events that benefit people suffering from ailments that also qualify for a medical marijuana prescription in your state, e.g. the Parkinson's Foundation.
    • Host educational seminars for seniors at local retirement communities about pain management with cannabis.
    • Host a wellness event and promote with vendors — both cannabis related and not.

    By actively engaging your community you’ll not only boost your brand awareness, but more of your customers will have long term positive associations with your business, improving your brand loyalty over time.

    4. Securing the right partnerships

    Competitive dispensary vendor partnerships

    Because the cannabis industry has become so competitive in legal states, being able to secure the right partnerships is more important than ever before. Your ability to compete on price and quality depends entirely on your relationships with vendors in your area. It's a tough job, but you need to understand how to choose marijuana dispensary retail software from the thousands of options out there.

    Partnerships with local vendors and growers are essential to your business plan. Effective partnerships will help you to ensure that you have a solid dispensary tool stack with partners that are lower and higher priced based on quality, with a range of strains and products as well. Establishing relationships with a variety of vendors can keep your company agile, allowing you to source new products to meet new demand from your customers—even better if you can secure exclusive partnerships for your store (more on this in the next section).

    Understanding your unique customer base and why those people buy from you helps you to strengthen your own brand, develop advocates, and expand your local word of mouth marketing initiatives. Conduct the market research necessary to learn industry standards and preferences in your local area. A cannabis market intelligence tool like BDS Analytics can help provide detailed insight into what, when, where, and how much consumers are purchasing so you can benchmark your performance against the total competitive market.

    Equally as important as your vendor relationships are your technology partnerships. Some tech options such as seed-to-sale cannabis software may not be the best choice for this. Here at Flowhub, we’ve partnered with popular cannabis partners to provide seamless API integrations throughout the cannabis supply chain—from online ordering, digital menus, payment processing, analytics, delivery, and more. Having the right tools on hand to help you handle the complicated business of retail cannabis can free your time to focus big picture strategies that drive growth.

    5. Differentiating your dispensary

    differentiate your dispensary

    When you compete only on price, that is the only bar that customers have to judge your business against the competition. Unless you want to be held to price-based competition, there are a few steps that companies should take to stand out. These strategies give your customers more reason to shop at your store (besides bottom-barrel prices).

    Offer products your competition can not

    The best way to separate yourself is simply to offer products that your competition can not offer on their own. While vendors typically want to work with as many cannabis retailers as possible, there are a few ways that you can ensure that you secure products that aren’t offered outside of your own retail locations.

    First, you could negotiate an exclusivity deal with vendors. While you might have to pay a premium (because they are ultimately reducing the number of stores that their product is available in), you do guarantee that you are the only store that can offer a given product. If you are willing to invest enough to buy out their entire inventory and future production for a specific product you’ll have an easier time convincing a vendor to take this plunge

    Another option is to develop partnered branding deals with vendors. This could be developing an in-house brand for your recreational store or a completely new brand for the partnership. Either way, you benefit from having a product that none of your competition can offer. Using your internal data to identify products that specific customer segments will be interested in can help you to target an audience from the first day your new product launches.

    A great example of product differentiation comes from House of Dankness, a Colorado-based dispensary offering their own premium, rare genetic strains. They have established themselves as a brand known for unique, high quality product that cannot be purchased elsewhere. When you can do that, you compete less on location and price while offering a product that others in your area aren’t able to.

    Watch the House of Dankness episode on Canna Cribs to get an inside look into the entire operation, from growing to dispensing.

    Differentiate your in-store experience

    When every cannabis store feels the same, customers don’t have a reason to seek out new stores for new experiences. The truth is that offering a different in-store experience can go a long way toward helping you to cultivate relationships with customers in specific segments. Take the time to think through your dispensary visual merchandising and store layout to best attract customers.

    Today, a popular trend among many dispensaries is to create a sophisticated shopping environment similar to traditional retailers they may already be familiar with, like a high-end cosmetics, liquor, or jewelry store. A modern look helps foster respectability and can mean the difference between customers that are otherwise on-the-fence about buying cannabis and loyal returning customers.

    Here’s an example from MedMen, a multi-state operation based in southern California that has become known for its consistent brand identity and Apple Store-like aesthetic:

    MedMen Dispensary Layout
    Image Source: Rolling Stone

    Here’s another from Good Chemistry, a dispensary brand with stores in Colorado, Massachusetts, and Nevada:

    Good Chemistry Dispensary Layout
    Image Source: Inc.

    These minimalist styles can help cannabis dispensaries attract a certain type of crowd. But, in-store experience goes a lot farther than how a store looks. It’s about the complete experience, including interactions with security at the entrance, how the store handles browsing, and how interactions with cashiers and customer support representatives shapes their view of your brand.

    Decide on what makes your store’s culture unique to your competition. How can you better engage customers from the minute they walk into your door? Cookies, a popular cannabis brand located in California, has purposefully designed one of their stores with no waiting room. Customers are assisted as soon as they walk in, which gives more opportunity for their sales associates to discover what the customer is looking to get out of their purchase and make additional product suggestions

    Educating your staff on the different customer types that you serve and the unique strategies that you can use to connect them with products that they will appreciate can go a long way toward cultivating the types of relationships that bring customers back. This article on catering to senior citizen customers can give you some ideas for how to think about accommodating specific, emerging customer groups like fitness enthusiasts, new moms, or connoisseurs.

    Generally, retail cannabis stores should focus on creating a welcoming, approachable atmosphere inclusive of types of customers. Simple things like ensuring that you have enough staff on hand to answer questions on the floor, having attractive product bundles to increase order values, and smooth ordering procedures can help convince your customers to return after their first visit, and that’s key — you must give your customers a reason to come back. The simplest way to achieve this is to incentivize their return. Utilize cannabis loyalty programs that provide discounts to customers that make regular purchases from your store.

    While most cannabis companies don't accept card payments because federal banks won’t allow them to store or move money through them, accepting point of banking gives you a big leg up on the competition. Other purchasing options that can help you to stand out include obtaining licensing for delivery, or enabling customers to order ahead and pick up in-store.

    6. Strategic pricing tactics

    use strategic pricing tactics at your dispensary

    Loss leaders are a common tactic that retail stores use to get customers through the door. A loss leader is a pricing strategy where a product is sold below its market value in order to stimulate sales of more profitable goods. The loss leader is the deal that gets people into your store, while sales of your other products are what drive profit.

    The Psychology of Price Anchoring for Dispensaries

    Anytime that you’ve received a mailer with coupons from your local grocery store, there is a good chance that there are multiple loss leaders included in every pamphlet. That great deal on ham? It’s meant to get you into the store because they know that you will be buying mashed potatoes, green beans, alcohol, and dessert to go with the ham. They may sell the ham at cost (or below), but your purchase of the additional items more than makes up for that loss. This same concept can be applied to retail cannabis stores.

    For dispensary businesses, loss leaders can come in many different forms. Any steep discount that you offer and advertise could be a loss leader. You may offer a special on small quantities, and use the interest in those products to upsell higher quality options once they are in-store. Loss leaders can also be effective tools to capture customer information and grow your loyalty programs so that you can continually market to customers over the course of months, rather than just when they visit your retail location.

    You may also want to consider evaluating your dispensary's data using the SCORE method to develop strategic pricing based on demand.

    7. Optimizing your operations

    optimize dispensary operations

    Your ability to run a well-managed store and provide a welcoming, consistent experience to your customers every time they come in relies on your ability to optimize your operations. It starts with streamlining business processes. Ensuring that you have processes in place for how your employees handle long lines, busy time windows, and unruly customers impact the experience that all customers have in your store.

    Before you can improve operations, you first you have to know where you stand. Start by establishing some measurable retail key performance indicators, and then conduct an efficiency audit to benchmark your store’s current performance against those KPI’s.

    For example, how many payroll hours does it take your staff to successfully complete an inventory audit? What is your current average conversion rate of visitors to customers? What are your average wait times? How about your average transaction value? What is your dispensary shrink rate? These operational metrics all give you insight into where you could increase your revenue by improving workflows. Flowhub is built to help you measure and track your data to improve operational efficiencies. On average, Flowhub customers benefit from 6% sales growth month over month.

    After you benchmark your current performance, up your operations and modernize your dispensary with technology designed to streamline workflows. One simple step that cannabis retailers can take to reduce customer wait times is to use a check-in app that automatically adds customers into the POS queue. Flowhub’s mobile Greet App® makes it easy for dispensaries to validate IDs, upload documentation, add customer notes, and check people into your store in seconds.

    Watch how Cookies Melrose in Los Angeles uses the Nug to streamline check-in:

    Operations must also be optimized in the back of the house. For example, the mobile Stash App™ can save hours of time and reduce staff resources required to conduct regular inventory audits, as well as the work behind managing, moving and transferring inventory.

    Other Flowhub features like the dispensary par Level report can provide dispensaries with visibility into what inventory to purchase, how much is needed, and anticipating the timing of those stock levels.

    Beyond tracking your KPI’s, ongoing and in-depth analytics are another necessary component of operational efficiency. Advanced Executive Dashboards in Flowhub provide a birds-eye-view of your performance trends, helping you identify gaps within your success strategy and make data-backed decisions.

    Better environment, more customers

    In an industry that is becoming increasingly competitive with falling prices, it’s important for brands to differentiate themselves from the competition. This can be accomplished through the products that you offer, the in-store environment that you create, and the initiatives you install to persuade first-time customers to return.

    Flowhub offers a number of solutions that can help cannabis business owners establish ways to compete locally and install operational processes that help to foster a cleaner, more consistent experience for your customers.

    Want to learn more about how Flowhub can help companies navigate an increasingly competitive market environment?

    Request a demo for a free consultation with our cannabis retail experts.

    Anne Fleshman

    Anne Fleshman

    Anne joined the cannabis industry to support the legalization movement and help cannabis businesses grow. With a background in early-stage B2B SaaS startups, Anne excels at executing scalable, repeatable, and compounding marketing systems to achieve sustainable business growth. Connect with Anne on LinkedIn.

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