The impact of taxes on out the door pricing

By: Brian Yauger

In the wild world of cannabis, taxes play a big part in retail pricing. A frequent question we hear in the offices is ‘How much are retailers marking up product?’. Looking at the data, we’ve seen that generally, the wholesale to retail markup is around 3x. Why? Well, taxes.

Take a look at an example below. In this example, the numbers used are taken from a product that has been listed on the Lemonhaze top charts

Example: 1 gram bag of flower
Retailer wholesale cost = $3.33
Double the cost = $6.66
Excise Tax (37.5%) = $2.50
Sales Tax (9.5%) = $.63
Total $9.75

In this example, taxes makeup approximately 1/3 of the price customers see listed on the menus and pay at checkout, with 1/3 going to the producer/processor via wholesale costs, and the other 1/3 going to the retailer.

The retailer markup in line with other industries. According to Shopify, “Most retailers benchmark their pricing decisions using keystone pricing, which is essentially doubling the cost of the product to arrive at a 50% markup.”

Given the above, a 3x out the door markup makes sense. Take away the added excise tax, and cannabis retailers still have the same overhead costs as other retail businesses (rent, payroll, insurance, etc.).

Of course, this is a rule of thumb, and products will vary based on sales, expenses, competition, etc.

We put together a fun tool to for you to explore average markup percentages around the state. Have a try, and don’t forget to check back with daily to see live product pricing from across the state, updated hourly till 4:20pm!


One thought on “The impact of taxes on out the door pricing”

  1. Add the license fees, employee taxes, 280e non-tax deductions, local licenses and permit fees, overhead expenses and there is little to no money left for PROFIT! We must become viable as an industry or this experiment will fail. Never in modern history has cannabis been so cheap and I fear that it is now likely fueling unregulated sales to minors. Why would someone peddling weed to under 21 pay black market prices when they can walk into a store and buy it for less?
    The race to the bottom is not healthy and cheap weed is a travesty to the legacy growers that have passionately supplied this region for decades.
    Support the family farms around you that employ from your community. AND be willing to pay $35-$40/ eighth – it’s the right thing to do!

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