Inflation has been a hot topic of late, having reached its highest peak since 1982. But, what’s inflation exactly, and how does it affect your cannabis business? Here’s what you need to know.
What Is Inflation?
Inflation is a decrease in the purchasing power of money. That is, a dollar will buy less and less over time. Inflation is typically reflected in rising prices of goods and services to make up for the decreased value of the dollar. Even a healthy economy will experience a small amount of inflation over time, but inflation that rises sharply and suddenly can really throw businesses for a loop.
What Causes Inflation?
There’s no one single cause for inflation. These days, the COVID-19 pandemic has affected several stages of production and retail including the supply chain and availability of labor. Increased gas prices have also affected the cost of raw materials and shipping. Because each stage of production has become so expensive and difficult for many producers and distributors, they’re charging retailers more for their goods.
Many people were also able to spend more money over the last couple of years with government stimulus checks and money they may have saved simply by having to stay home. With a surplus of cash in Americans’ pockets and a need for stimulation (or maybe at least reorganization) at home, demand for goods increased unexpectedly, further contributing to a spike in inflation.
How Does Inflation Affect Retail Sales?
Since retailers have to pay more for goods during inflation, they pass on extra costs to consumers by raising prices in their stores. If demand for an item is high enough, consumers will continue to buy it regardless of the cost. This effect causes retailers whose production costs may have stayed low to also raise their prices, simply because they see an opportunity to make more money.
Inflation and Cannabis Business
Luckily, cannabis is in as high of demand as ever. But, as more states legalize marijuana for medical and recreational use, more cannabis businesses open up to capitalize on the hot new market. The increase in competition means that retailers can’t afford to raise prices, even if production costs go up. Steady prices may make the cannabis industry appear unaffected by inflation, but cannabis businesses are having to eat their increased production costs instead of passing them on to their consumers the way other retailers can.
The Federal Reserve is making moves to curb inflation over the next couple of years, meaning that the future for cannabis businesses remains strong. As costs of goods relax, cannabis retailers won’t have to take such big hits to their bottom line anymore.
Bespoke Financial Can Help You Manage Inflation Costs
Bespoke Financial can help you increase your purchasing power with a line of credit, inventory financing, money purchase financing, and invoice financing. If your cannabis business has been affected by inflation, contact us to see how our flexible, reliable financing options can help you meet your financial needs and plan for growth today!