As the cannabis industry matures, some companies are emerging as clear winners in this competitive market. They’ve managed to stabilize and expand their operations, often while merging with similar brands or acquiring smaller shops to build their market reach and in-house capabilities. And those acquisitions can be very profitable or they can just compound the problems within the parent company.
For most companies to continue growing profitably, they need to shift their approach.
Most multi-unit businesses operate under Model 1, which treats every location as a separate business that does everything for itself.
Cannabis operators must shift to Model 2, centralizing certain business functions at headquarters to create economies of scale and specialization.
The lesson: what got you to this point of success will not lead you to any new levels of achievement.
Our experts recently worked with a client that had eight dispensary locations within the same state. We led them through a process to shift their strategy toward this centralization model; and in this post, we’ll give you three steps to illustrate how you can make a similar adjustment.
Step 1: Build a robust support headquarters
Our team has seen many cannabis retailers that operate with their own general manager at each individual dispensary. The GM’s responsibilities include everything from scheduling, purchasing, cash-counting, and paying vendors to managing inventory levels, hiring and much more.
The issue with this model is that when you have multiple general managers performing all of the duties for different units, your GM is too in the weeds (no pun intended) and cannot focus on becoming a master of any specific task. This limits the growth of your overall business.
Instead, reallocate specific unit duties to a central, corporate entity. Outsource a few specific duties to headquarters that do not need to take up time and resources at the store-level. For example consider starting off with bringing these two functions into headquarters:
- Purchasing and inventory management: when seven dispensaries are purchasing product individually, they don’t have much leverage. Seven stores buying in bulk, however, allows the business to get better deal terms and pricing which will help you save on COGS. More on this in a minute.
- Payroll and accounts receivable: including vendors, rent, utilities, marketing. More on this in the section below.
Let’s focus on the buying power that comes with coordinating your supply chain through a central entity. It’s not far-fetched to see a dispensary do $100k top-line per month. Markups are usually 100% – that means 50% is COGS. Quick calculation shows that comes to $50k per store for seven stores, that’s $350k/Month in COGS. But, if you can get a 15% discount when buying in bulk, that is $630k in annual CoGS savings for the entire system!
To implement system, you need a robust POS that tracks inventory and sales. You will also need to hire a specialized analyst and a buyer who can manage all of the product inventory and buying needs. Central management also helps reduce erratic buying habits of GMs who hear about a product from one or two patrons, and then buy in bulk on a whim. Experienced buyers will have the ability and know-how to test new offerings and launch them successfully to minimize waste.
We also suggest that you get your own distribution license, purchase products in bulk using that license, and then distribute to each store. This is what every major retailer is doing in ordinary businesses such as pharmacies and big box stores. It can result in significant cost savings.
Step 2: Centralize accounting and cash handling
As alluded to in the previous section, aside from centralizing buying and inventory management, you should centralize accounting.
HQ should be in charge of remitting payment to vendors and taking care of other payables, including payroll. This all goes for tax payments too; don’t force individual stores to keep up with the tax bill due dates.
A dispensary’s primary focus should be on creating a great guest experience, not managing every aspect of the business. You can still track all sales and costs at a store-level. But, to grow to the next level of profit, you must have a specialized accounting and tax team that knows the standard operating procedures and regulations to make sure payments are made on time and with accuracy.
As a business owner, this setup grants you access to accurate information about the business overall and at a granular location level. Data reports will be more timely as compared with having each individual location share info that then needs to be consolidated by someone in-house.
A second key piece to centralizing your cannabis accounting is the cash management factor.
When dealing in a cash-heavy business such as cannabis, there are many opportunities for theft and diversion of cash. Payments to vendors go missing, or shrinkage can slowly eat up your profit margin.
To mitigate this issue, change all safes within the dispensaries to drop-safes with cash deposit logs. Then, shift managers can drop cash into the safes, make an entry into the cash log and have no way to take any money out. A single cash custodian based at HQ can go to each location, pick up cash and bring it all to an undisclosed location for reconciliation and bank/central safe deposits.
This minimizes liability as a business by making cash management the responsibility of one assigned person, rather than seven separate GMs. It gives the in-store operators peace-of-mind that they are not responsible for making any transactions from the safe and that there are no discrepancies that they need to vouch for.
Step 3: Reorganizing general managers and job responsibilities
Once you have outsourced major tasks, such as buying and accounting, to your main headquarters, do you really need to have a GM at every location?
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Consider having a multi-unit manager (MuM) per region to oversee the overall operation. Hire one or two shift managers at each dispensary location to supervise employees and monitor the guest experience.
This helps you save on salaries, lets you get focused on specific roles, and grow your business sustainably. General Manager salaries range from $50-80k per year whereas a shift manager can be hourly and come in at about $30-40k/year.
As you divide the responsibilities of your MuM and shift managers, start with your multi-unit managers. Their role is first and foremost to make sure every shift manager has what they need for success:
- Are the right products coming in on time from corporate?
- Do they need help with creating any promo materials?
- Help with hiring new budtenders
Shift managers will focus on providing a great guest experience without the stress of everything else. Their main goal is to increase the average ticket size. They should regularly run a sales report from each budtender to see who is performing best. The SM can document what this budtender is doing to achieve better sales, create sales scripts, and train the team on best practices. They should consider how the budtender greets guests, how they bundle products, and how they upsell a client. These scripts are also helpful when you have higher turnover and you can give the SOP documentation to a new hire who can then jump right into the job role.
Optimize Your Cannabis Business Today
Of course, there are other strategies you might deploy to optimize your multi-unit cannabis operation. Start exploring how your team might implement these approaches, and if they’ll work for your unique organization.
In the process, you will be saving time and money while also creating a support team that specializes in different aspects of the business. Go from a generalist mindset, which requires your general managers to do everything, to higher specialization. This will take time and effort, but the rewards can be great.
For advice and assistance, reach out to our experts.