The Slotting Fee Showdown over Cannabis in California
Preview: Here’s what cannabis retailers and manufacturers should know about the slotting fee showdown taking place in California right now.
California cannabis retailers are catching the heat for charging marijuana manufacturers monthly fees to reserve prime shelving real estate in their stores.
The cannabis industry is highly regulated across the country, and legal retailers are increasingly concerned about underground dealers who continue to undercut their profits.
Slotting fees are one way that retailers are coping. However, industry leaders are worried the additional shelving fees will crowd out smaller companies from the market.
The competition for shelf space will only grow fiercer.
The Price of Product Placement
Retailers reportedly charge anywhere from $1,000 to $50,000 for shelving space, with higher prices leading to better product placement. The average monthly slotting fee, however, sits between $5,000 and $10,000 – a hefty price, nonetheless, for manufacturers who want to get their product in front of cannabis consumers.
Slotting fees are relatively new in the cannabis industry, but the pay-to-stay practice that began in 2018 has taken off since then across California, specifically in southern California.
Plus, state laws mandate that only cannabis retailers can sell to the public – manufacturers must go through retailers to reach their customers, meaning shelf space is at a premium.
The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) does not explicitly address slotting fee legality, although many argue the fees violate both MAUCRSA and state anti-competition laws.
If retailers ever decided to collude and raise slotting fee costs across the board, manufacturers would have substantive evidence of unfair competition practices. Until then, however, cannabis slotting fees fall into the gray area of the law.
Cannabis industry regulators will need to decide whether cannabis will follow in the footsteps of grocery stores or alcohol retailers.
Slotting fees are common in grocery stores, where manufacturers routinely negotiate with retailers over optimal shelf space and product placement. Conversely, California liquor laws prohibit slotting fees with alcohol.
State regulators have stayed largely silent on the slotting-fee debate, meaning retailers and manufacturers will continue to battle it out over the pricing model.
Cannabis manufacturers are entering the market at a faster rate than retail stores are opening, meaning the competition for shelf space will only grow fiercer.
Ironically enough, cannabis brands kick started the trend when they offered retailers money in exchange for better shelving real estate in shops.
Although some larger companies have built slotting fees into their budget, the increased costs have disproportionately affected smaller and newer cannabis businesses.
In order to cope with California’s growing cannabis market and increased competition, retailers may consider expanding the size or number of their storefronts in order to accommodate the growing number of manufacturers.
Retailers may also consider investing in self-ordering kiosks, which can feature products from a variety of brands and expand available “shelving” into the digital space.
Cannabis a booming business, but in states such as California where marijuana has been legalized, retailers and manufacturers will have to work together to confront the question of slotting fees in stores.
Slotting fees may become as commonplace in the cannabis industry as they have in mainstream supermarkets. Manufacturers need to find new options to promote their products while reducing expenses. Better use of technology and budtender training is a good start.
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