Chart: Diversification enhances profitability of marijuana product manufacturers – to an extent

Makers of cannabis products are more likely to turn a profit if they offer merchandise across multiple categories – but that profitability declines if a manufacturer produces too many types of goods.

For companies offering products across a single category, 27% described their business as profitable compared with roughly 50% of companies offering products across multiple categories, according to the 2019 Marijuana Business Factbook.

Increases in the proportion of profitable businesses occurred as the number of products grew from one to 15, but the percentage of profitable businesses producing more than 15 products fell.

The manufactured product categories ran the gamut from concentrates – including dabbable concentrates, vape pens and oil for vaping – to cannabis-infused products such as beverages, edibles, topicals and tinctures.

As the ranks of consumers purchasing cannabis products grow and product innovation expands, diversification is a key aspect of running a successful infused product business. Companies can leverage the name and reputation they’ve built in one space when moving to another.

For example, a gummy manufacturer could build on its reputation in that category when introducing products in the infused beverages market.

This strategy allows the company to gain valuable shelf space with retailers based on established relationships or recognition of product and brand strength.

But a company won’t necessarily be successful solely because it offers multiple products.

These companies may have expanded their product lines because they were successful in other areas of their business and chose to reinvest their profits into creating new merchandise.

And some companies may have enjoyed improved profitability from gaining economies of scale as they expanded their offerings.

Reduced profitability beyond 15 products may be a result of companies having moved to a point where producing additional goods costs the company more money than those items add to revenue.

Maggie Cowee can be reached at [email protected]

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