How Consumer Data Effects Economies of Scale in the Cannabis Industry

How Consumer Data Effects Economies of Scale in the Cannabis Industry

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Now that marijuana legalization talks are becoming more commonplace across the country and national legalization is becoming more of a possibility with every passing day, cannabis companies need to consider how they will keep up with very real possibility of exponential consumer demand increases.  Cannabis companies that can keep up with the growing marketplace by optimizing their output efficiencies after national legalization will help them pivot and scale seamlessly to keep up with the demand surge.

Businesses that can consolidate their customer orders and take advantage of economies of scale will ultimately put their company in a better position to overcome market saturation and become an impressive tour de force across the industry.  Let’s review how using segmented cannabis consumer data can help companies increase visibility into their operations and maximize their revenue potential from a myriad of customer touch points.

Paving the Way for Economies of Scale to Prevail

Standing idle when demand strikes is never a good strategy no matter the industry your company occupies.  This is especially true for the cannabis industry seeing as laws do not currently exist for interstate transport of cannabis.  Therefore, cannabis companies must operate within the constructs of their own state lines for the time being.  This can lead companies to be more risk averse in their ordering habits, opting to only order what they need in the short term that they know for certain will sell rather than purchasing product that will allow them to scale.

Although this may be the most prudent business-minded strategy for the cannabis industry in the present tense, national legalization poses a demand problem that can only be ratified by companies that are privy to national-level consumer data trends.  Imagine a scenario where your company increases its customer pool by over 10,000% overnight.  If you prepare your business with a better understanding of consumer trends on a national level, you can forecast your inventory needs better, allowing you to increase your output and become a more reliable brand for new and existing customers.

Purchasing Higher Quantities to Take Advantage of Economies of Scale

When cannabis businesses are able to increase their purchasing quantities, they will be in better position to negotiate better per-unit fixed costs.  If consumer demand pans out as forecasted based on data trends, these large orders can increase profit margins exponentially.  Of course, these large orders can have an inverse effect on storage costs which makes correctly forecasting consumer data more important than ever when ordering for economies of scale.

If consumer trend projections turn out to be wrong, it will most definitely lead to increased overhead costs related to storing slow moving inventories.  Having a handle on your consumer data to keep track of trends in the marketplace will help you decrease the risk of this scenario playing out negatively.

Understanding the Supply Side of Things Through Consumer Data Insights

Even if national legalization doesn’t happen within this decade, the current market for marijuana is estimated to be anywhere between $17.5 – $35 billion in sales by 2020 (whereas the industry was between $5-$6 billion in sales in 2015).  What is encouraging this strong sales growth has undoubtedly been the falling marijuana prices in several states as is noted by the below 2018 chart:


When companies are able to harness market and consumer data and put their finger on the pulse of the average consumer, they put themselves in a better position to optimize their supply side economics to enter emerging markets without an issue.  As prices continue to decrease customers will opt to buy from the legal stores instead of turning the black market, thus putting more pressure on store owners to increase their available inventories to service the increased demand.  Stores that are able to service this demand will be able to increase their total revenue but will also earn less revenue per customer.

Understanding Cannabis Customer Segments via Data Insights

Today, the cannabis data industry is relatively small, but this will almost certainly change.  As more jurisdictions open up to legal cannabis and more players enter the market the demand for data will continue to grow.  For businesses to centralize their purchasing systems and create more efficient distribution structures, every step of the retail process must be informed by the best and most robust dataset possible.  By having the foresight to increase your company’s order quantities and diversify your product portfolio will make your business more appealing to budding consumers as the industry continues its upward growth trajectory.

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