Jordan Hilber’s Post

I made post about how much quality over quantity matters in regard to profits in cannabis and received some push-back about the way I ran the COGS using the same cost to produce for both scenarios. Here's my explanation on why I chose to run numbers that way... If I were running COGS to see what cultivars we should keep vs cull, I would absolutely look at things on a on-by-one basis. Although, that would really be too easy to get an accurate number since we don't divide production labor out by cultivar worked; but we could still get a "close enough" figure for those types of decisions. However, this scenario was looking at overall profitability while using cultivars from two ends of the spectrum as examples. For this purpose, I prefer to use a blended margin approach by looking at full production output based on total costs to get an average cost to produce per pound. It also helps because the costs that went into producing a batch were already long spent before the revenue is realized, so we aren't really looking at a COST/SELL dynamic like we would in other production or sales scenarios that have a shorter production to sales timeline. Since there are 4-6 months of costs that go into a harvest before there is a chance to see any revenue from it, the sales from every harvest are really going into the production of future harvests - and not necessarily of that same cultivar. This is another reason why I choose to use a blended margin approach, as it ensure we are able to keep a more even and balanced cash flow and revenue stream and also reduce price elasticity of our products creating more consistency for our customers. When you know the parameters that you need to remain within (which any good business person should know for their business) then a blended margin is much simpler and gives a better overall picture. Happy Friday, y'all!

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