After two years, COVID is still wreaking havoc on businesses through labor shortages. Three factors drive declining workforce participation rates: the Great Resignation, retiring baby boomers and declining immigration rates. According to Lynn Reaser, the Fermanian Business and Economic Institute chief economist, “wage inflation is the dominant risk.”
We are also seeing massive spikes in the cost of labor and goods. As of November 2021, the Consumer Price Index was up 6.8% year over year. In December, Federal Reserve Chairman Jerome Powell stated that “the risk of higher inflation becoming entrenched has increased.”
I vividly remember the horrific effects of inflation during the presidency of Jimmy Carter. In November of 1979, the CPI was up 12.6%, putting the United States in economic peril for several years. Will we see similar inflation numbers in 2022? With no end in sight, what can cannabis businesses do to protect themselves from runaway inflation?
And how can artificial intelligence help?
It’s more expensive than ever to operate a cannabis business. First, there’s a labor uprising afoot in most industries across all pay levels. Workers expect compensation beyond what many cannabis-related companies can afford, where labor expenses average around 30% of gross revenue.
Second, due to supply chain challenges, prices are increasing across the board on necessary items, such as fertilizer and packaging supplies. However, unlike other industries that are passing their increased costs to their consumers, cannabis retailers, generally, have not.
Third, cannabis firms face higher financial, regulatory and security expenses than other verticals because cannabis is illegal on a federal level.
Finally, the illicit market can hamper the bottom line of legal cannabis companies. According to Statista, in 2019, legal cannabis sales were $3.1 billion, while the illegal market garnered $8.7 billion dollars in sales during the same year.
All four scenarios can put a significant dent in your dispensary’s profit margin, which averages 15%. However, as AI applications become more commonplace, they can now help address many of these challenges, especially when it comes to labor.
Role of Artificial Intelligence
When AI started to come on the scene three or four years ago, it was common to hear, “AI is coming for your job.” Two years into the COVID pandemic, AI is now being accepted as an ally to help combat the labor shortage.
Ask any dispensary owner how their business is, and they’ll tell you that while sales are great, they are having trouble retaining or hiring new employees. Eventually, if they cannot service their customers, they will falter.
Consider the dispensary owner who pays his staff of 10 employees $15 per hour. Now say three people resign, and those who responded to his job ad for replacements are demanding $20 per hour. If he hires them at their requested rate, he might have to raise everyone else’s salary by 33%. Since competition is fierce among dispensaries, he might not be able to raise his prices to offset increased labor costs.
AI-driven tools can aid customer-centric jobs in dispensaries to help displace costs and improve efficiencies. Some examples include vending machines that show the customer what they are likely to purchase; document management companies that automatically organize your digital assets; and marketing tools that can analyze your sales data to help you target the right person with the right product at the right time.
According to Accenture, AI tools can boost labor productivity by up to 40%. And most of these platforms are more cost-effective and productive than the full-time employee who receives $15 per hour. Now our example dispensary owner — with the aid of AI-driven tools — may only need to hire four full-time employees at their requested rate of $20 per hour.
2022 and beyond
A recent article by Harvard Business Review stated “the question is no longer if a company should use AI — but where it brings the greatest competitive advantage.”
Some predict that the labor shortage will last a decade. The big difference during the inflationary events of the 1970s and now is affordable technology. AI tools can mitigate the need to hire new employees, while at the same time paying your current or new staff the wage rates they desire.
It’s a great time to be in the cannabis industry because of its explosive growth. There’s money to be had in all its aspects. Bu the competitive advantage for dispensaries may belong not to those who offer the lowest price but those who embrace innovation.
Jerry Abiog is the co-founder and chief marketing officer of Standard Insights, an AI as a service marketing platform. Standard Insights helps businesses leverage their first-party customer data to help them drive growth and improve their market share. He can be reached at email@example.com.