making your cannabis business recession proof

The United States is currently dealing with uncertain financial times. Inflation is at its highest in decades, interest rates have been rapidly rising, supply chain issues stemming from the COVID-19 pandemic are still impacting many industries, and the war in Ukraine is having a financial ripple effect throughout the world. With all these factors at play, it should come as no surprise that many leading economists have predicted a recession will hit the US economy by the end of 2022 or early 2023.

While we don’t know for certain whether a recession is on the horizon, it’s important to have a plan in place in the event that one does occur. There are a variety of steps you can take to help your business stay profitable during a recession. With a little proactive planning, you can significantly increase your chances of successfully navigating the challenging financial climate that may potentially lie ahead.

Is the Cannabis Industry Recession-Proof?

tips for making your cannabis business recession proofThe cannabis industry is still relatively young and wasn’t around during the last major recession in 2008, so there isn’t any historical data to help us predict exactly how an upcoming recession may impact the industry. Some experts seem to feel that the industry is relatively recession-proof, while others fear that it may be hit hard.

Experts that argue the cannabis industry is relatively recession-proof look to the alcohol industry as a guide for how cannabis will perform. Alcohol sales held relatively consistent during the 2008 recession and over the long term, sales increased. This is likely due to the fact that many individuals view alcohol as something that provides relaxation and stress relief, making it an expense worth keeping in their budget when money is tight. Cannabis is a similar mechanism for relaxation and stress relief, so many experts believe it will fare similarly to alcohol if a recession hits.

Other experts fear a recession will have a greater impact on the cannabis industry, citing a variety of factors to support their belief:

  • Prices are rising consistently
  • Cannabis operations are expensive to run
  • The industry is over-regulated to the point where it can be stifling to businesses
  • Business deductions are challenging due to IRS laws governing the cannabis industry
  • Lack of effective federal cannabis reform and widespread legalization weakens the industry as a whole

However, the experts who think the cannabis industry may be hit hard by recession also indicate that the impact may vary by state. States with emerging cannabis markets such as New York, New Jersey, Massachusetts, Illinois and Florida may fare better due to higher wholesale prices and less competition in their market. On the other hand, states with more mature cannabis markets such as Colorado, Washington, Oregon and California may be more severely impacted since businesses in these regions already deal with issues associated with declining wholesale prices, overproduction of many products, and a saturated market that creates fierce competition for customers.

6 Steps to Make Your Cannabis Business Recession-Proof

The following tips provide a good starting point to help protect your cannabis business in the event that a recession hits in the next few months. Keep in mind that the specific steps you’ll need to take will depend on the unique factors impacting the industry in your area.

Streamline Your Business

A positive cash flow is critical to the success of any cannabis business. Because cannabis is still a relatively new and emerging industry, many businesses have been able to spend freely to capitalize on expansion opportunities. While this free spending may help your business grow during a strong economy, it can create cash flow issues during a recession.

The best way to avoid this problem is to streamline your business. Look closely at all your expenses. Prioritize those which are critical to the growth and success of your business. Cut out expenses which may be deemed less necessary. Do the same with every aspect of your operations. Are there areas you can eliminate and still maintain your profitability? If so, you may want to cut out aspects of your business which aren’t turning a profit and focus all of your resources on those areas which generate the most revenue.

Re-Evaluate Your Vendor Contracts

While it may be possible to weather vendor contracts with unfavorable terms during a strong economy, these contracts can become financially crippling during a recession. Now is the time to examine all of your vendor contracts to identify any that have unfavorable terms for your business.

If it’s possible to terminate these agreements, you should put in your termination notice now and shop for a better contract with a different vendor. If you’re unable to get out of a bad contract, reach out to the vendor and see if you can renegotiate some of the terms which may place a financial strain on your business if a recession hits.

Review Your Inventory Management

Reigning in your inventory costs can provide significant savings and help you remain profitable during a recession – as long as you’re not sacrificing the quality of your product mix in the process. Conduct a thorough review of your inventory management to:

  • Identify items which you’re ordering in too large a quantity
  • Determine products which you may be able to source at a better price
  • Re-evaluate your inventory par levels to make sure you can stay on top of ordering and shop for the best deals

Revisit Your Product Mix

evaluate your cannabis product mix to make your dispensary recession proofDuring a recession, it’s crucial that you offer the right products for your customer base. For example, a cannabis business in an affluent area may be able to maintain a higher sales volume of premium cannabis products during a recession. These customers will still have money to spend on cannabis and value quality over cost. In these situations, offering premium clean green cannabis products can differentiate you from your competitors and gain a larger share of this quality-oriented customer base.

However, cannabis businesses with a lower socio-economic demographic may find that focusing on lower and mid-tier products will appeal more to a price-conscious customer base that has been hit hard by the recession and has less money to spend on cannabis.

You should also identify which products don’t perform well and phase these out of your product mix. Cutting back your offerings and focusing only on the products which perform well can help you stay lean and profitable during a recession.

Maintain the Loyalty of Your Existing Customer Base

Maintaining a loyal customer base is critical during a recession. These customers provide an easy opportunity to increase sales without heavily investing in efforts focused on bringing in new business. During tough economic times, customers are more likely to shop around to find the business offering them the best deal. Therefore, you need to make your existing customers know how much you value them.

There are several ways to accomplish this:

  • Rewards programs – Offering a rewards program is a great way to cultivate repeat business. If customers know their loyalty will be rewarded with a free or discounted item after a certain number of visits, they are more likely to keep coming back.
  • Specials – Everyone loves a deal. Consider offering daily, weekly or monthly specials for some of your most popular products, giving your customer base an incentive to keep purchasing these items from your store.
  • Customer service – Providing excellent customer service is one of the easiest ways to differentiate your business from your competitors and show your customers that you truly care about them. Identify the needs of your customer base, and go above and beyond to meet these needs. Keep your customers happy and they will keep coming back to you.

Invest in Marketing

Many businesses will look for opportunities to reduce their costs during a recession. While this is sound thinking in general, it’s important to be critical of the areas where you reduce your budget. Often, marketing budgets are one of the first places businesses will make cuts during a recession. However, this is one of the biggest mistakes you can make.

A recession is the time where your business needs effective marketing the most. Customers are looking to make changes in their buying decisions in order to better optimize their limited funds. Make sure your business is top of mind at a time when customer loyalty tends to wane. Stepping up your marketing efforts during a recession will help potential customers become aware of your offerings and let them know what differentiates you from your competitors. This can help you attract new customers at a time when your competitors are losing them.

American Cannabis Company Can Help Your Business Navigate a Recession

Navigating a recession is challenging for any cannabis business, and it can be helpful to have the guidance of an experienced cannabis consultant who can identify the most important steps necessary to make your business recession-proof. American Cannabis Company has extensive experience providing robust cannabis consulting services nationwide. We understand the ways in which state regulations impact your business, and we can help you devise a plan that will allow you to remain successful during an economic downturn.

As the nation’s leading cannabis consultants, American Cannabis Company has the proven track record you need to realize the full potential of your business. Our data-driven approach to industry success enables us to conduct a comprehensive evaluation of your operations and identify the specific actions that will be most impactful in moving your business forward. Our team of cannabis consultants will provide detailed recommendations on the steps you need to take to ensure your business is prepared for the upcoming recession.

Contact us to schedule a free consultation.