Maximizing Profit Margins in the Pre-Roll Cannabis Market

No matter what industry you conduct business in, you need to know your operating budget and profit margins to be successful. When it comes to the highly competitive cannabis industry, the smallest shifts in margins can make a world of difference.

If you are a cannabis operator looking to maximize profits with pre-rolled joints, you need all the information you can get on industry trends and manufacturing techniques. As one of the leading pre-roll suppliers in the cannabis industry, Custom Cones USA has the experience and knowledge to help you realize consistent profits through the sale of commercially produced joints.

What are the Current Profit Margins in the Pre-Roll Cannabis Market?

Cannabis markets operate independently on a state-by-state basis; however, a high-level view of industry averages can help us better appreciate the importance of lean operating and smart business. As Northstar Financial Consulting Group explains, "medical and recreational marijuana cannabis dispensaries usually operate with an average net profit margin between 15 and 21 percent after accounting for taxes. However, equally important to note is that this percentage varies in accordance with state or provincial regulations."

Slight variances in laws can greatly impact potential profit margins for cannabis operators, but the competitiveness of the markets will also push producers and retailers to lower prices. Figuring out ways to keep up with falling prices without significantly cutting into your margins is something that will give your company the edge it needs to thrive in this competitive market. Here’s a few ways to do that with pre-rolls!

Minimize Packaging

While professional pre-roll packaging is essential in the cannabis industry, it can also cut into your profit margins if handled incorrectly. Simply put, too much packaging leads to overspending. So, the first thing you can do to increase margins is to try and eliminate any unnecessary secondary packaging that does not play a crucial role in protecting the product.

It’s also a good idea to combine labels as much as you can. In the end, every label that you use adds to the materials and labor expenses for each pre-roll you produce. If possible, we recommend you use a variable data printer because they allow for more customization.

Remain Compliant

No matter what state market you operate in, your cannabis operation must meet certain compliance standards for product testing and packaging laws. If you are in the business of selling pre-rolls, product testing can have a negative impact on your bottom line. Not only must your flowers pass rigorous 3rd party lab testing for pesticides, molds, and heavy metals, but your rolling papers must also meet these standards as well.

Compliance laws also require you to package your cannabis in a certain fashion. For example, many state markets require the use of tamper-evident seals for cannabis products. Failure to utilize built-in seals, shrink brands, or stickers can result in hefty penalties that can negatively impact your bottom line.

Discount Wisely

Another way to increase profit margins for pre-rolls is to be careful with the use of discounts. Instead of offering discounts that encompass your entire catalog of products, be strategic about which products get discounts. Use discounts to clear products that you need to be cleared from your warehouse or plan a sale around a holiday that will entice more sales so you can make up the difference in volume.

It’s also important to communicate sale prices with retailers. If the retailer passes on the discount you gave them to their customers, the customers can become accustomed to that discounted price. This can lead to issues later on, if you plan on bringing the price back up. Customers will view the real price as a price increase, which can make them pick a different product. Ask retailers to sell your products for their original price (improving their margins on each sale) or have them explicitly tell customers that it is a promotional price.

Purchase Materials in Bulk

Buying cones and packaging in bulk will help improve your profit margins by lowering the cost of your starting material. Not everyone has the space to store extra inventory, but buying more pre-roll materials at once will save you money on shipping, and you will be able to get a better per-unit price on your materials with larger orders.

Saving two cents on a cone for buying in bulk may not sound like a lot now, but that can end up being a significant sum of money over the course of a year of sales. You can save even more money if you buy your pre-roll packaging in bulk as well. So, if you have the space to store the material and the demand to get through it in a reasonable amount of time, buying in bulk can have a huge impact on your margins.

Use the Right Flower

While you should avoid using shake to roll joints, it's okay to use buds that don't carry the same jar appeal as the top colas. For some reason smaller buds, also known as “popcorn buds,” sell for significantly cheaper than larger buds. They have the same cannabinoids and terpenes as the larger buds, but customers just like to see big buds, so producers can’t sell them for the same price.

This makes them perfect for pre-rolls, as they are just going to be ground up anyway. Buying this tier of buds will allow you to have the quality you want for the price you want, and buying small buds in bulk will give you an even better price. If you are a producer, investing in pre-roll production for your smaller buds is a great way to get the most out of each harvest.

Improve Pre-Roll Machines

To keep your product supply chain running smoothly, you should keep your pre-roll machines operating at their very best. This includes making sure they are regularly cleaned and serviced. Having your pre-roll machines working well will reduce labor costs and increase margins for your operation.

You also want to make sure you have the right machinery for your needs. Buying the biggest and most expensive pre-roll making machine might not make financial sense for your company at the moment. A lot of the time, it makes more sense to invest in multiple smaller machines and/or accessories.