At the first year anniversary of recreational cannabis in Missouri, the state industry is healthy. The transition from medical to recreational cannabis went smoothly, with licenses issued quickly. While demand far outstripped supply in the early weeks of the transition, supply is now up.
With sales at the $2 billion mark in the first year, the industry is full of promise — but despite those encouraging numbers, there was still a fall in retail prices throughout the year, indicating that unless volume continues to increase, we could see a dip in overall sales.
There is a solid foundation of retailers as well as licenses issued for processors, growers and retailers, and micro-licenses will be issued over the next two years. That’s where the challenge lies:
In 2024, unless retailers find ways to sell to new consumer channels or increase their sales per transaction (aka basket size), we can expect to see more price compression or normalization overall in the market statewide.
That means that to maintain 2023 levels of profitability in 2024 or increase profitability, cannabis businesses will have to focus on fundamentals.
Here are ways Missouri cannabis businesses can make their second year as, or more, profitable than their first.
Dig into Last Year’s Data
In order to make a plan to move forward, if you haven’t already, retailers should look at their historical data and see where the growth is going to come from. Take a look at how their sales were split up: recurring customers, customer retention, best-selling categories and profitability by category.
Another area of focus should be consumer base: are there any demographic trends in terms of preferred form factors? Does your assortment address that trend?
The market data shows that form factors other than flower will continue to take up a larger share of overall sales, so if flower was a strong category for you, it’s important to think about a strategy moving forward: There will be a large section of those sales that you can’t move on, but there may be a segment of that population that is more educated and would be able to be pushed into other, more profitable categories.
Strategies like these depend on having an educated staff, with limited turnover, so that the people who are making the sales know which consumers they can grow sales with.
Watch the Hemp Industry
Missouri has taken a strong stance against the hemp-derived market. It’s unique as it’s one of the only states to have taken the position that hemp-derived products fall under their cannabis program regardless of THC levels.
That’s the good news. But the one thing to watch out for is: how much will it be enforced? (New York, for example, did not enforce its hemp policy until after there had been significant sales.) That means that in addition to monitoring the policy and any future developments, it’s important to see how well it’s enforced.
Beyond that, a retailer would want to know about local hemp and Delta nine sales trends, by using sales tracking data, for instance from the cannabis data company BDSA. (Some data companies are willing to exchange data with retailers, either providing free or low-cost overall market data in exchange for access to retail data, so it’s worth looking into as it can impact strategic decisions for little to no cost.)
Make Your Voice Heard
Missouri is unique in another way: the state trade association, MoCann, stepped up and filed a law suit against unconstitutionally stacked local taxation in St. Louis county: a local 3% adult use marijuana tax stacked on top of a municipal 3% tax, in violation of Article 14 of the Missouri Constitution.
City, county and state officials want a thriving cannabis industry that generates more revenue. To do that, they can’t tax it so much that price-sensitive consumers go to the illicit market.
As cannabis fights to play on a more level field, it’s essential that all members of the industry support their local trade associations and speak up whenever possible.
Avoid Leaks in Profitability
As an operator in Missouri, the landscape is only going to get more challenging, especially since the federal cannabis landscape is also promising big changes in the months to come. Running the businesses is a lot like the plumbing in your house: you might not realize you need a plumber when there are little leaks everywhere. All the tweaks that you can make to improve your metrics at the sales and the customer level while maximizing overhead, will help increase your overall profitability.
You know your operations, but a financial consultant can come in, on the financial side, to help inform operational decisions to maximize profitability and cash flow. To learn more about maximizing profits, check out our Cannabis CFO Insights: Metrics to Cultivate Profits webinar.
Interested in making 2024 (even more) profitable? Reach out to learn about our Cannabis Virtual CFO services. We would be happy to help.
