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We’ve all seen the news. As new cannabis markets open, states rake in huge amounts of new cannabis tax revenue. It’s easy to see dollar signs everywhere you look. After all, the businesses that get in early when demand is high and supply is low see the biggest profits. 

Here’s the thing—supply and demand will eventually balance out. And while even the most saturated markets in any industry still have room for newcomers to make money, the profit margins decrease significantly. 

The cannabis market is no exception. As we continue our series for cannabis business owners in the licensing process, today’s post is all about understanding the proven economy of the cannabis market so you can create the most effective and reliable forecasts.  

 

A Glimpse into Cannabis Profitability Over Time

It’s not rocket science. If you forecast based on high introductory profit margins, and you’re late(r) to a market after supply and demand balance out, your revenue is likely to fall short. 

On the other hand, if you budget based on a mature market forecast (read lower profit margins per pound of weed), you’re more likely to be able to pay all of your bills including rent (as we discussed in the last post) and reach your planned profits.

Opening a cannabis-related business can provide a great income, but understanding the kind of economy your business is entering is not optional. It’s a must. 

So how can you create an accurate forecast if you don’t know when your license will get approved? Start by researching the state and municipality you plan to operate in and get an idea of what the economy looks like for your business. If you don’t have a bead on it yet, consider looking at markets with similar populations or demographics to see how their markets have matured.

And, if you need help, we’d love to talk about how to forecast your cannabis business’s expenses and profits. Contact us today.

Budget Low, Profit High(er)

No matter what your budget is, make an effort to base it on the lower end of the profit scale. You’ll never regret having more money in the bank than planned if prices are higher. 

Ready for financial support in your cannabis business? Contact Accounting for Green today to find out how to get started.

To catch the other videos in this series, see the links below.

Conversation #1 Cannabis Start-Up? What You Need to Know About Pre-Licensing Expenses

Conversation #2 Documenting Funding for Your Cannabis Business

Conversation #3 Know Your Cannabis Biz Pros 

Conversation #4 Choosing a Host Community and Location

 

Prefer to read instead of watch the video?

Here’s a transcript of the video:

As each individual state becomes legal, the first people who are able to operate in the state usually get the best of the economic conditions of that state. They also deal with some shortages in supplies and things like that. But if you’re coming into a state a little later in the game, you want to be sure that your forecasts that you’re looking at and your foot traffic and your road traffic studies, I would say be conservative with those and really make sure that your budgeting and your forecasting can support you in a conservative. 

You know, be real with yourself when you’re looking at these forecasts, because there are a number of forecasts that are out there that existed from the beginning. Like in Massachusetts, where I am, which I would call at this point a mature market, we see forecasts that were done from three or four years ago when were in a different place in the cannabis economy in Massachusetts. So in new states, the money is better. The cost per pound is usually higher. The cost per gram is usually higher. And so cultivators are making more money in those states if they get licensed early on. And as the state becomes more mature, the prices level out. 

So it is definitely a supply and demand market, and it definitely changes over time as those markets become more saturated. So there’s less competition initially, and less competition means that there’s a better stakehold in the marketplace. 

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