By Jonathan Gilinski

In any business if you can produce perfect, consistent products, you can convert that into a consistent and predictable stream of revenue.

However, as we all know, cannabis is an agricultural product. Unlike organizations that manufacture machine-made products, cannabis growers cannot count on yielding batch after batch of a completely identical harvest.

After all, there’s plenty that can go wrong between seed and sale. Pest infestations, poor trimming and mishandling can all prevent a plant from reaching its maximum potential.

Plants aren’t perfect

The unfortunate reality is that a cannabis harvest may not produce the stellar quality product that was expected. Chances are, not every flower can be sold at top dollar. Some plants will be so inferior, so subpar, that they’re not sellable as smokeable flowers at all.

When this happens, what do you do with the imperfect product?

After all, no one wants to go into a dispensary and buy a product that isn’t visually appealing. Customers want to be able to snap a picture and brag about their most recent purchase on social media.

As a subpar quality product is not desired by anyone, do producers simply need to accept the idea that they’ll lose a percentage of their crop and chalk this up to a cost of doing business? Or, can they do damage control and try to make up for lost revenue?

Substandard plants CAN be monetized

As far as I’m concerned, the “damage control” approach is the best option. Just because a portion of a harvest can’t be sold directly to the retail market does not mean that it is worthless!

Subpar cannabis that does not meet the quality standards for retail sales can be processed in a way that greatly increases its monetary value. Typically, producers turn their subpar cannabis into a non-smokeable product, such as edibles, sublinguals, tinctures, transdermals, etc.

I’d like to suggest another option that may be even more profitable: Encapsulation. Take this “surplus” product, turn it into capsules, and create a new high-value revenue stream for your operation.

The ROI of cannabis capsules

How good an option is this? Let’s take a hard look at how the numbers play out. As with any other business decision, it’s the numbers that will tell you if expanding your product line to include capsules makes sense.

Assuming that the cannabis concentrate (i.e. the fill material for the capsules) will cost you $310 per ounce and you will be producing 10 mg capsules packaged in standard 10-count blister packs, here is a run-down of your likely costs to set up an encapsulation facility and start producing cannabis capsules:

Now let’s look at the revenue side of the equation

Assuming that your facility is running 52 weeks a year, six (6) days a week, eight (8) hours per day, at 90 percent capacity, you’ll be able to produce 3,144,960 capsules per year.

At a market value of $1.50 per capsule, these 3,144,960 capsules can bring in a gross profit of $3,765,981 ($3.765 million) per year. That means that when you spread your business set-up costs out over five years, you can produce an extremely attractive 4,707 percent annual ROI!

Plus, you won’t have to sell all 500,000 of your initial order of capsules to make money on your inferior/imperfect product. The break-even point to cover all of your one-time start-up costs plus your variable per-capsule costs is at a fraction of that total: just 44,044 capsules. And you can produce 44,044 capsules in less than five days!

Plus, of course, all of this can be done in a superior fashion with top-quality product, for an even higher ROI.

Is encapsulation right for you?

This is a question that only you can answer.

What are you currently doing with your “unsellable” product? How do these numbers for encapsulation compare to your current solution?

Is there much competition in the cannabis capsule market in your area? Do you think the differentiating factors of capsules versus other non-combustible products (such as complete dosage control and no issues with dietary restrictions) would make capsules more desirable in your marketplace?

Encapsulation can be an excellent solution for maximizing the monetary value of your lower-value product. Do the math and think about if this is a good fit for your business.