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Compensation in Cannabis Retail stores is broken.

cannabis retail people profitable retail May 13, 2024

Many see the Cannabis Retail industry as thriving, but there's a hidden problem behind the shiny facade: compensation for management teams.  While budtenders benefit from tips, and higher-level store managers qualify for bonuses, assistant managers (ASMs), supervisors, and keyholders are left in the middle, feeling undervalued.


These crucial team members are caught in a compensation squeeze. Their operational duties limit their tip-earning opportunities, leaving their hourly wages below the value they bring. This disconnect can lead to burnout and high turnover and ultimately threaten your dispensary's profitability and overall success.


It’s a problem, and it’s causing strain within many dispensaries. 


Let's delve deeper into the root cause of the dispensary compensation issue. Then, we'll explore tactics for building a bonus and compensation structure that attracts and retains employees.


Why Dispensaries Need Bonus Structures for Management

Dispensary staff can be put into five tiers: customer service staff, assistant managers/supervisors, store managers/department leads, regional leads, and owners/C-suite. 


How many employees you have, and the depth of these layers depends greatly on the organization's size. Obviously, single-store operators will have a simplified version of this, while MSOs may have even more layers. 


While customer service staff thrives on tips, assistant managers and supervisors often fall short in total compensation despite their leadership roles. Compounding the issue is the limited talent pool of qualified ASMs and Keyholders in the cannabis industry.


To compete for these valuable team members, cannabis retail leaders need to prioritize keeping them feeling appreciated and fairly compensated, just like you would their most loyal customers.


What are the Compensation layers within a dispensary?

There is a hierarchy within operations, and each level handles compensation differently.

  1. Customer service (budtenders, greeters): Hourly rate + tips (based on work hours and customer interactions).
  2. Mid-level managers (ASMs, supervisors, keyholders): Hourly rate (some with bonuses). They handle customer service and store operations.
  3. Upper management (store managers, regional leads): Salary + benefits + bonuses.
  4. Owners and executives: Salary + benefits + company performance bonuses (like stock options).

In the first two categories, compensation arrangements are on par with other industries, like retail and hospitality. Their compensation includes an hourly rate plus tips, which varies based on their hours worked and customer interactions. It's a performance-based system that rewards hard work and positive customer experiences. And as an industry, there is a desire to pay our lowest-level staff better. 


But the biggest opportunity is with our mid-level manager in cannabis, including store leaders. 


Despite being considered leaders and coaches who encourage customer engagement and drive sales initiatives, keyholders and assistant managers often earn less total compensation than budtenders. 


Why? Because they support operational tasks, which takes them away from the sales floor and POS, reducing their chances of getting tips (if they’re eligible for tips in the first place). Tips may seem unfair to team members on the management team because they are perceived to make more, but in many instances, this is not the case. 


Attracting and retaining qualified employees for assistant manager roles can be challenging, and this critical position faces additional challenges.

The Impact of Qualified Employees

Despite what may appear to be an abundance of Assistant Managers, the problem is that there is a limited supply of qualified ASMs and Keyholders in the industry. They are often underpaid and undervalued, with Keyholders being viewed as glorified budtenders who lack leadership respect.


This creates a talent gap. Retail operators can't expect a budtender with just six months of experience to seamlessly step into these roles. They are underequipped, undertrained, and underinvested. ASMs and Keyholders need targeted training and investment to understand their complex responsibilities and perform effectively.


Failing to invest in your team can impact your entire operation; let’s find out how.


Unlocking Peak Performance: Invest in Your Team

Motivation is key, and proper incentives drive outcomes. Offering rewards, such as appropriate pay, benefits, bonuses, or recognition, ignites motivation and activates the brain's reward system.


The timing, type, and perceived value of rewards play crucial roles in motivation. Immediate rewards often have a stronger impact than delayed ones because the brain prefers instant gratification. That's why annual incentives in retail often don't work as well.


It also comes down to individual goals and reward styles. While individual reward styles may vary, fair pay is the foundation. Consider the high cost of employee turnover when designing your incentive programs.


The True Cost of High Turnover

Cannabis stores lose way too many employees each year (around 55%), which can seriously hurt your bottom line and pose a real risk to your cannabis business.


Burnt-out managers - who feel underpaid or undervalued—can lead to unhappy demotivated teams. This can lead to stores opening late, missing sales goals, and having compliance issues. 


Add on the cost to replace and retrain employees (up to $7,000 per Budtender when taking into account not only onboarding but also the superfluous costs of wages, payroll taxes and benefits, recruiting, training and hiring, IT and director overhead, and admin support). Suddenly, that high turnover rate becomes a financial disaster. 


Here’s the good news: you can address this. By implementing a well-designed bonus structure, Cannabis retailers can boost employee retention, ensure fair compensation across all dispensary roles, and drive performance improvements at every level. 


Boost Employee Loyalty and Performance with a Smarter Bonus Structure

How do you ensure fair compensation across all roles? Start by clearly outlining the roles of each level within your organization and aligning the compensation with role-specific measurements to maintain loyalty and performance. 


This approach makes sense since not every role requires the same type of comp plan. Each plan should be unique based on the role’s goals and performance indicators. Craft a bonus system that recognizes the unique contributions of each role in your dispensary.


  1. Keyholders & Budtenders: Focus on day-to-day performance indicators. Reward them on upselling or cross-selling using sales contests and performance-based bonuses
  2. Assistant Managers: These are measured based on weekly store goals and improvements. Reward them for meeting sales targets or employee engagement.
  3. Store Managers: Tie their bonuses to monthly/quarterly goals like exceeding sales quotas, managing payroll efficiently, and maintaining accurate inventory.


By developing a compensation structure for each role in your cannabis dispensary you’re not only motivating the team, you’re ensuring your retail leaders understand how their contributions directly impact the bottom line, fostering a culture of ownership and alignment.


Setting Difficult yet Achievable Goals: The Sweet Spot

Setting benchmarks for sales incentive programs is a delicate task. They should be challenging enough to inspire hard work but realistic and attainable to avoid demotivation.


To strike the right balance, consider the following strategies:

  • Data-driven goal setting - Use historical sales data to set ambitious yet grounded benchmarks for the team. They should be market-specific. 
  • Tiered incentive structures - Implement multiple achievement levels, allowing employees to experience success throughout the incentive period. Each tier should pose a progressively greater challenge, encouraging continuous effort.
  • Transparency for all - Make tracking goals easy for all employees. Ensure you’re paying out bonuses in a timely manner. There’s no quicker way to ruin morale and lose trust than to implement bonus structures but not honour them.


Money is a strong motivator, but offering a broader compensation package ensures your compensation strategy fits the needs of your many varied employees.


Beyond Money: A Well-Rounded Package

When it comes to motivating employees to perform better, financial incentives are impactful, but offering a broader compensation strategy can round out your incentives depending on your company's goals, financial standing, and budget: 


  1. Bonuses - Offer cash rewards for hitting quotas (percentage of sales or a set amount). Paid monthly or quarterly. Support the business’s bottom line because they’re performance-based.
  2. Commissions - Motivate high performers with a commission structure tied to their sales. Especially effective for those highly motivated by financial rewards.
  3. Salary increases - Recognize consistent excellence with regular salary bumps at the end of sales cycles. Incentivizes employees to perform at a high level consistently.
  4. Stock options/equity—Consider stock options for a long-term commitment, but ensure they complement, not replace, a strong base salary.

The key is to find the right combination of these components to motivate and retain your best employees.


The Takeaway: Invest in Your People

Compensation in cannabis retail isn’t just about money; it's about showing your team you value their contributions. By understanding the unique contributions of each role and tailoring bonuses accordingly, you create the environment for a highly motivated, engaged, high-performing team.


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