2023 Was a Remarkable Year for Cannabis Retail

• Cashless payments were volatile but fast-moving operators rose above
• Product assortment shows convenience is key
• 280e repeal and federal legalization kicked down the road again

The last year was truly monumental in the cannabis industry, though maybe not necessarily in the best way. The retail industry saw volatility in the cashless payments landscape, stores struggling to achieve profitability, stagnation in product type movement, and Congress at a standstill when it came to legislation that would bring much needed relief to the cannabis retailer. 

It’s not all doom and gloom though - there are real success stories amongst the difficulty, which is a testament to the grit of the cannabis retailers out there thriving. Retailers who focused on the hard truths found in their data kept growing in a difficult cannabis landscape and we’re so proud to count so many of these success stories as Treez clients. So give yourselves a hand, for surviving and thriving throughout 2023 and let’s look back on what a year it’s been. 

Facing all these challenges down and still finding the power to thrive, to pivot, and to double down on what’s working is impressive. That’s why we’re calling it now – 2024 is the year of profitability. Those retailers who are ready to identify their best trending labor practices, product lifecycles and distribution, revenue sources and money sinks are going to come out ahead. 

Those who choose to do things “as we’ve always done them” or refuse to confirm their hunches with data will lag behind. In so many ways, the wait for federal legalization and the repeal of 280e has shown itself to be a marathon. While the election year brings with it hope, it also comes with the potential that the cannabis industry is approaching the 26.2 mile marker and being waved around for lap 2.

Our advice: Prepare your retail business with deep looks into your finances and standard operating procedures as if federal legalization or rescheduling will happen in 2024. If it does, you'll be in a stronger position to compete and grow faster, with deep insights on what works and what to sink your new cash flow into. If nothing happens on the federal cannabis front, you'll be in a stronger position to survive through the headwinds and keep growing.

Volatility in Cashless Payments for Cannabis

In 2023, on the heels of 2022’s cashless payments shut down, we saw even more cashless payments difficulties. Just ahead of several of the biggest cannabis sales days, retailers started experiencing declines when customers tried to use certain brands of debit cards. The scramble for cashless payment alternatives came at a terrible time and many retailers balked at the task of handing over more bank documents, running through more verification checks, and not knowing for how long a certain payment alternative would last. 

At Treez, we’ve frankly had enough and decided that to truly provide retailers with the ability to accept cashless payments, we needed to help out in this part of the cashless payments process. In late 2023, the TreezPay One Application entered the game, promising to change it for every retailer on TreezPay. Soon, retailers were submitting their applications to one central location and embarking on a journey to never worrying about a cashless outage again because One App lets TreezPay accounts easily switch to a new payment time up to 4x faster than before. 

Despite the industry wide cashless payments woes – and definitely because of the TreezPay One Application’s introduction and ease of use – retailers on Treez continued to see an increase in cashless payments utilization. In 2023, 22% of transactions were completed with a cashless payment type.

That’s up from 2021’s 12% of transactions and 2022’s 19% of transactions. These percentage gains are impressive. But they don’t compare to traditional retail’s cashless payments attach rate of 80/20 cashless/cash. What needs to happen to make that level of attach rate a reality in the cannabis space? Probably a combination of things, including increased customer education, budtender education, and increased trust in cashless payments as an option on the retailer side. Did we miss anything? Share your thoughts  in the comments and we’ll include your feedback in an upcoming dispatch.

Our advice:

Federal legalization would open up the ultimate path to fully available cannabis payment options. Until then, we recommend that retailers keep several, redundant options live to keep customers happy and money flowing. Confirm regularly with store staff that they know how to run and explain payment methods preferred, and that they understand preferred methods are subject to change.

Take a page out of Higher Level’s playbook and only use integrated payment methods to ensure staff already know how to use a system before adding a cashless payment to the transaction. Use multiple, redundant payments to A/B test which are the most likely to lead to higher AOV, higher customer return rate, and more customer satisfaction. Consider using payment methods like ACH for online purchases only to start, so customers can attach their bank account simply at home. After all, adoption of new payment methods starts with ease of use.

Top Cannabis Product Types Point to Convenience 

Retailers who regularly examine their product type performance, like California retailer Embarc, will already know this – the top product types sold in 2023 veered towards the classic (flower) and the convenient (vapes and prerolls). As you read through this, take a page out of Embarc’s book and intentionally examine product performance with data. To provide a consistent experience across store locations, Embarc decides about 80% of their SKUs at the corporate level and experiments locally with about 20% of their shelf space.   

Flower accounted for 36% of gross receipts in 2023, continuing to hold the highest percentage of sales by gross receipts of any product category

Cartridges made up 27% of sales by gross receipts in 2023 across all locations on Treez. Everyone’s second favorite purchase in the dispensary was the cartridge. More discreet than flower, faster acting than even the fastest-formulated edible, portable and longer-lasting (YMMV). The high may not be for all purists, but the numbers don’t lie - consumers chose cartridges second only to flower in 2023.

Beverages: 1% of sales in terms of gross receipts

Beverages are a splashy and interesting form factor in cannabis. Drinks are easy to understand to the United States population used to unwinding with alcoholic beverages. Doses are just as widely ranged as in the edible product type, but there’s a novelty factor and the fact that some states have allowed THC beverages to be sold alongside alcoholic ones, opening them up to a wider consumer base. But they’re not stealing huge portions of product share, at least not yet. 

Prerolls: 15% of sales in terms of gross receipts

While growth for the category has leveled off year over year, prerolls made up a sizeable amount of 2023 purchases - 15% of sales in terms of gross receipts. If your dispensary’s sales performance doesn’t line up with this number, take a hard look at your locations’ product type performance to understand what might be different about your customer base vs. the overall Treez data.

Edibles made up 11% of sales by gross receipts and Extracts; share of sales in terms of gross receipts was reduced to 6%. We hear a lot of the external world talking about edibles as basically the only way cannabis buyers consume the plant. That’s just not borne out in our numbers. Edibles have their place, absolutely, but retailers would do well to keep this data (backed up by their own Product Type Assortment numbers) in mind as they purchase. Could it be that the average edible buyer is a more casual consumer, and therefore isn’t buying as regularly as the everyday flower or pre-roll smoker or vaper who repurchases every other week?

Our advice: 

Based on our findings of category growth and sales performance, Treez recommends that in 2024, retailers stock up on convenience products like cartridges and prerolls. Consider ways to offer beverages as an add-on upsell, since their price point tends to be low enough for the average customer to consider adding one on, and they likely already have a preroll and/or a cartridge in their cart. Target loyal customers with deals on flower to move bulk product. 

And keep a sharp eye on expiring products by using functions that can filter your Product Inventory and Sellable Units Remaining by Batches Expiring and Inventory Age like in Retail Analytics to reduce losses from avoidable product destruction. 

So we say goodbye to 2023, a year marked by both challenges and triumphs in cannabis retail. From the fluctuating world of cashless payments to the evolving product preferences of consumers, the industry navigated a complex landscape. Data-driven decision-making and adaptability spelled success for those willing to harness them.

As we step into 2024, the focus shifts industry-wide towards greater profitability and efficiency. The key to this lies in embracing new technologies, optimizing product assortments, and remaining agile in the face of regulatory uncertainties.  

We want to hear your voice in this conversation. What are other topics you want to see us run through Treez data? Use the link below to share your thoughts via email or hit us up on LinkedIn, Instagram, or X, and we’ll shout you out if we use your topic. Your insights and suggestions are invaluable as we continue to navigate this dynamic industry together.