Margin Percent Isn’t The Point Anymore: “Dollars In My Pocket” Takes Over

The era of expansion-first strategies is giving way to operational precision. That was the clear consensus among cannabis executives gathered recently in Jersey City for a panel titled “What Comes After Rapid Growth? Margin Discipline.”

The panel featured Travis Scadron, EVP at Surfside, Krista Raymer, CSO of C3 Industries, Trent McDermott, COO at Verano Holdings Corp (Cboe CA: VRNO) (OTCMKTS: VRNO) and Trent Woloveck, chief strategy director at Jushi Holdings Inc. (OTCMKTS: JUSHF).

The discussion, moderated by Tom Zuber of Zuber Lawler, centered around margin compression, capital allocation and how operators are adapting to slower growth and rising costs.

Margin Discipline: From Percentages To Dollars

The panelists agreed that retail prices have forced operators to rethink how success is measured.

Referring to the New Jersey cannabis market, C3 Industries’ Krista Raymer said that defining change is a sharp decline in average unit prices.

“The average unit price that was moving out the door in the New Jersey market was about 40. Today it is about 30,” Raymer explained. “We need to be much more specific on what our pricing structure looks like and what our costs look like to be able to control the margin dollars.”

Jushi Holdings’ Trent Woloveck emphasized the industry’s shift from margin percent to absolute returns.

While “margin percent is great,” the real priority is “dollars in my pocket,” Woloveck noted. “Those dollars are what at the end, drive the business forward,” as they are what “gets paid back out to our employees, our shareholders.”

Every Part Of The Supply Chain Under Pressure

Executives emphasized that every part of the supply chain, cultivation, manufacturing and retail, is simultaneously affected by margin erosion.

Verano’s McDermott shed light on cost increases that are widespread.

“You have cultivation where labor costs are going up. You have inputs, salts, feed, all cultivation things that are getting more expensive,” he said. “On the retail side, you also have labor increasing as well as discounts increasing. So there’s erosion happening everywhere.”

McDermott flagged that small operational inefficiencies can compound quickly without close tracking. “Even if it’s a few basis points per extraction run… at the end of the day, it really adds up,” he warned.

Ways Retailers Try To Offset Price Compression

That said, cannabis retailers are turning to advertising-driven revenue models similar to those of mainstream e-commerce.

Surfside’s Scadron pointed out to the trend of monetization of digital storefronts by cannabis operators, drawing a comparison to Amazon.

“Sixty-eight percent of the profit on Amazon’s e-commerce platform actually comes from advertising that they sell,” Scadron said. “They’re not really even an e-commerce company when you get down to it.”

Cannabis retailers can get access to additional high-margin revenue streams via monetization of premium menu placement and in-store promotions, he added.

“You need to make sure that you’re pushing the right products at the right moment and that you’re tracking whether that person actually converts at the checkout,” Scadron said.

Efficiency And Capital Discipline Over Expansion

In the meantime, over the past two years, capital allocation strategies have changed, executives agreed.

Verano has shifted its strategy from infrastructure expansion toward optimization of operations and development of new products. “Our capital is more flowing into brand building, innovation, R&D, and systems that allow us to fine-tune our efficiencies,” McDermott said.

Jushi pulled back on store expansion to focus on key markets. “Going wider and deeper in some states makes a lot more sense than broader and wider across many markets,” Woloveck said.

Market-Specific Conditions

Yet, every market has its own specificity. In New Jersey, Verano sees benefits from being vertically integrated.

“We love being vertical in New Jersey,” McDermott said. “We love the margin capture, as well as being able to bring our products to market.”

C3 Industries is applying a different approach in the state. “For New Jersey, we are not vertical in this state,” Raymer said. “We find that this state is a great place for us to be able to work with vendors and have the flexibility to bring in brands and meet the demand of our customer base.”

A More Disciplined Phase

Executives agreed that the cannabis industry is entering a more mature phase, with profitability depending on operational execution.

“At the end of the day, it’s dollars and cents that actually make the business happen and move forward,” Woloveck said.