Editors Note: This is a guest post.
As a cannabis grower, small increases in your profit margins can make a big difference in the success of your business. And if you want to scale your operations, you need to focus on getting the small details squared away.
5 Ways to Increase Profitability
As cannabis becomes destigmatized as a legitimate industry, it’s imperative that growers and retailers become even more focused on cleaning up business processes and optimizing for profitability. Here are some specific ways you can do just that:
- Get to Know Your Numbers
You can’t strategically boost profit margins if you don’t know what your profit margins are to begin with. To find your profit margin, simply subtract your total business expenditures from your total revenue. This provides your net income. Then take your net income and divide it by your total revenue. This leaves you with your profit margin.
It’s also important to know metrics like how much it takes you to produce an ounce or a gram of marijuana; how much you can sell different products for; which products are most profitable; which products have lower margins; etc.
You don’t need to be a CPA to understand the basic numbers behind your business. Any time you invest in analyzing this side of your company will serve you will over the long run.
- Optimize Floor Space
As expensive as warehouse space is in most parts of the country, it makes sense that you’d want to make better use of your floor space. In fact, optimizing your floor space is one of the smartest things you can do to boost profits. The more you can grow within a limited footprint, the better your numbers will be.
In addition to vertical cultivation strategies, which allow you to make better use of limited space, you should find the correct crop density for each specific strain you’re growing.
“When you begin to work with tighter plant density, your nutrient requirements are less, you can utilize labor better, you can more easily cycle plants so your harvest can [be continuous],” says Jim Ott, CEO of Precision Cultivation, which focuses on plant genetics. “If you’re making it like a manufacturing [facility], in terms of your workflow, those are ways to bring some efficiencies.”
Ott encourages growers to stop thinking in terms of traditional measurements, like pounds per bulb, and instead focus on more comprehensive formulas and calculations, such as cost per square foot.
- Automate Where You Can
Anything you can do to reduce labor with automation is going to benefit you in the long run. Labor is by far one of the greatest expenses. Whether it’s hand watering, trimming, moving plants around, or packaging, overreliance on laborers will cost you.
Automate wherever you can. One good option is to use automatic grow light lifters, which make it easier to move lights, increase production, and achieve more consistent and faster harvest rates.
A fertigation system is also useful. It will automatically inject important nutrients into your hydroponic grow, which eliminates the need for manual involvement. Again, major savings.
- Consider Outside Investments
As the saying goes, it takes money to make money. If you’re struggling to scale your operation to the level that’s required to maximize profitability, perhaps you should think about welcoming in an outside investor.
While there’s still a lot of red tape on cannabis business investments in the United States, restrictions are loosening, and more venture capitalists and investors are looking for ways to get involved. This could be a good way to inject some cash into the business and fund necessary improvements or expansion.
- Cut Energy Costs
Energy is obviously a significant expense. One strategy is to lower energy use by ensuring all equipment is appropriate to the specific needs of your site. Under- or over-sized equipment can dramatically impact energy efficiency, hurt production, and kill cash flow. Furthermore, you need to know the hours of peak demand so you can minimize energy use during these hours.
Ready, Set, Grow!
The beauty of our industry is that there are so many different strategies, business models, and avenues for success. But regardless of which paths you choose to pursue, profitability must be one of your primary concerns. And the more you’re able to grow your profitability, the more you’ll be able to scale and expand in ways that are meaningful.