The cannabis market is heating up so much that cannabis brands are often forced to “pay-to-play.” Brands are paying sometimes hundreds to thousands of dollars for prime real estate on cannabis retailers’ shelves. Commonplace in grocery stores, bookstore chains, and other retail businesses, these pay-to-play slotting fees have become more common in cannabis. Some dispensary operators see these fees as anti-competitive, while others view them as another stream of revenue for their business. Whether you choose to charge slotting fees may come down to your business' revenue and brand.
What are cannabis slotting fees?
A pay-to-play slotting fee is a monetary fee that retailers charge brands for space on their store shelves. The actual price of that fee depends on the product itself, the market, and the manufacturer. As cannabis becomes more popular and more products enter a very crowded market, the number of cannabis dispensaries in operation in the U.S. hasn’t been able to keep up. Shelf space is a premium and dispensaries are capitalizing.
Brands are paying slotting fees anywhere from $500 to $15,000 a month for premium shelf space in places like California and Nevada. But the slotting fees not only give brands a space on the shelf, it also allows them to control how their products are displayed. Dispensaries may also offer in store activations as part of the fee, like special customer loyalty promotions or posts on the shop’s social media accounts.
Are slotting fees right for my cannabis dispensary business?
Short answer — it depends. With slotting fees, cannabis brands aren’t just paying to have their products placed on the shelf. They expect the retailer’s sales team to be able to really sell the product and speak to its value for the customer. Some brands even hold training sessions with a store’s retail sales team to ensure that they know how to answer customer questions and promote the brand.
While this is a great value add for the large cannabis brands, smaller mom and pop brands don’t have large budgets for monthly slotting fees. Many in the industry argue that this puts them at an unfair disadvantage against the larger brands with more cash flow.
Cannabis dispensary owners and operators need to consider a few things when deciding if they should charge slotting fees. For one, consider your operational expenses and budget. Slotting fees can be a significant revenue opportunity depending upon the size of your shop and the type of products you’re selling. Some dispensaries may not necessarily need the extra cash flow, while others may depend on it to stay profitable.
Second, think about your shop’s clientele and the types of products in demand. You can’t sell what your customers don’t want. Are your customers looking for these products, or are they more interested in smaller mom and pop suppliers? If your niche of customers crave cannabis products made by small brands, those brands may not be able to afford expensive slotting fees. Related, consider whether you’re open to having brands conduct sales and marketing demonstrations and training with your team as part of the process. Is your team staffed up enough to be able to handle the extra in-store activations? If not, the extra income from the slotting fees may not be worth the extra cost of hiring additional staff to handle the activations.
While slotting fees are a growing trend in cannabis, they’re not right for every retail shop. Make sure to take both your bottom line and your customers’ feedback in mind before making the decision.