Margins rarely collapse because of bad strategy. They collapse because operators are working from incomplete, inaccurate, or siloed data — especially when calculating the true cost of goods sold (COGS). When the underlying numbers are wrong, pricing becomes guesswork, margins shrink, and leaders can’t steer the business with confidence.

If your pricing looks right on paper but your margins feel “off,” you’re not alone. Operators representing more than $2.8 billion in gross merchandise volume have experienced the same disconnect. The pattern is clear: Most teams are looking at the wrong data — or not enough of it.

This guide breaks down the biggest pitfalls in COGS calculations, the margin-killers hiding inside your workflows, and how you can reset your pricing strategy using complete, cannabis-specific data.

Why cannabis COGS are so often wrong

Traditional enterprise resource management (ERP) and inventory platforms weren’t designed for multi-stage cultivation, extraction, packaging, and compliance. They commonly miss critical inputs such as:

• Labor that spans multi-month grow or production cycles.
• Compliant packaging that costs five to ten times more than mainstream equivalents.
• Mandatory testing at multiple points in the workflow.
• Freight, cold-chain handling, and distributor logistics.
• Fees for state-mandated tracking systems (BioTrack, Metrc).
• Shrinkage from regulatory holds, failed batches, and recalls.

When these data points live in separate systems — cultivation logs, processing spreadsheets, compliance notes, accounting software — leaders get an incomplete picture. You may believe you’re profitable on a premium eighth, only to discover the real COGS balloon once failed tests, packaging changes, labor overruns, or distributor fees are included.

The most common pricing traps operators fall into

Cannabis-specific platforms can help capture the right data, but even with technology, human decision-making introduces risk. These are the most common pricing mistakes we see across the industry.

Going with your gut

Intuition isn’t a pricing strategy. Profitability needs data, not just instinct. Without a clear picture of actual costs, pricing decisions can leave money on the table or, worse, lead to loss.

Matching competitors’ prices

Keeping an eye on competitor pricing is smart, but copying it outright is dangerous. Your competitors’ margins, compliance rigor, packaging choices, and batch performance are unknown variables. Matching their menu prices can put you underwater instantly.

Relying on incomplete data

Raw material costs tell only a fraction of the story. Licensing, security, marketing, banking, and compliance must be allocated to SKUs for accurate contribution margins.

Ignoring channel-specific costs

A $35 house-branded vape cartridge might net $30 in your dispensary, $20 after wholesale distributor cuts (typically 30–40 percent), or $18 after online marketplace fees and shipping costs. Each channel has its own cost structure and margin thresholds. Ignoring the costs can turn profitable products into margin killers.

Using blended or averaged costs

Not all products cost the same to manufacture. Although all edibles fall within the same category, developing space cakes or brownies can be more expensive than producing chocolate bars, for example. Even different varieties of the same product, such as gummies, may carry varying costs per unit based on factors like flavoring ingredients. Blended costing hides loss-making SKUs and artificially inflates winners.

Misinterpreting tax data

Retail revenue is the post-tax number, not the pre-tax sticker price. A $40 pre-roll pack that deposits only $25 after tax isn’t a $40 SKU. The final, all-in price after taxes is the one to consider when margin-building.

Ignoring predictive analytics

Yesterday’s costs don’t determine tomorrow’s margins. Markets shift fast; prices must be recalibrated with every batch cycle. Pay close attention to shifts and integrate external factors like market trends and competitor entries to set prices for each new batch. Otherwise, you won’t see price compression coming until it’s too late.

Overlooking inventory turnover and product life cycle

Cannabis is perishable. Flower may last twelve to eighteen months before it’s unsellable; therefore, flower can’t be priced like it’s a widget that will last forever. Should you discount aging inventory? Run promotions on slow-moving inventory? Examine the batch-tracking and expiration data from day one to identify which products need action before they expire. That $50 eighth still hanging out on the shelf isn’t just taking up display space. It’s also killing your margin.

Channel costs and the margin snowball effect

A single mispriced SKU can set off a cascading series of margin failures. A product is underpriced in wholesale (channel A) to stay competitive, making the SKU secretly unprofitable. To compensate, you raise direct-to-consumer prices (channel B). That makes channel B less attractive, causing sales to drop and leaving you with excess, costly inventory that eventually must be discounted or written off, creating losses. These losses increase pressure to raise prices or cut costs elsewhere, restarting the cycle.

But over-pricing can be problematic, too. If consumers consider prices too high, they’ll look for better deals from competitors or the illicit market, leaving you with unsold inventory that ties up cash and risks expiration. Plus, your brand may start looking out of touch with the market. Worst of all, without steady sales and market share, you don’t have the fuel to scale.

Aggregate data can be misleading. One SKU may be ranking in a product category, while another may be bleeding cash. For example, edibles may seem profitable overall, but you must look deeper. Top-selling gummies may taste like “profit,” while stagnant chocolate bars may become bitter losses. 

You can’t scale what you can’t measure, but knowing the exact cost of every SKU allows operators to price for true margins, spot and slash losers, build investor-proof financials, and outmaneuver blind competitors.

How to reset your pricing strategy for clarity and growth

Made every mistake in the book? No problem. You can reset. Here’s how.

1. Conduct a cost audit

Start with a clean slate. Recalculate COGS using real, auditable data, not averages, estimates, or legacy assumptions.

2. Re-price strategically

If you found errors, don’t panic. Identify your target margins, then price SKUs using the full cost stack (labor, compliance, packaging, testing, channel fees, overhead allocation).

3. Leverage cannabis-specific software

Choose platforms that track multi-stage workflows, integrate with your tech stack, and support true SKU-level costing.

4. Review costs regularly

COGS are dynamic. New regulations, supply chain shifts, and rate changes require quarterly (or monthly) pricing reviews.

5. Start small, then scale

Fix the biggest cost drivers and most impactful SKUs first. Expand once you see margin improvements.

The bottom line: You can’t fix margins until you fix your data

When you can finally see your real costs, you can price with confidence, protect your margins, and scale profitably. Strategy isn’t the problem; incomplete data is.

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What’s Sabotaging Your COGS? The Essential FAQ for Operators

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With a background that spans mobile gaming, ad tech, and enterprise software, Distru co-founder and Chief Operating Officer Azam Khan brings a unique commercial lens to operational challenges in emerging industries. He currently oversees investor relations, growth strategy, and key operational planning as the vertical software-as-a-service (SaaS) company scales nationally.