The cannabis industry has experienced rapid growth in recent years, as more states and countries legalize the plant for medicinal and recreational purposes. However, despite this growth, many cannabis businesses struggle to achieve profitability, often due to high overhead costs.
Cannabis Overhead RatioOne key metric that cannabis businesses can use to measure their success and identify areas for improvement is the cannabis overhead ratio (COR). This ratio represents the percentage of a company's total revenue that is spent on overhead costs, such as rent, utilities, and administrative expenses.
Understanding the COR is essential for cannabis businesses, as it can provide insights into the company's financial health and help identify areas where costs can be reduced to improve profitability.
Calculating the COR is relatively straightforward. To determine the ratio, a company should divide its total overhead costs by its total revenue, then multiply the result by 100 to get a percentage.
For example, if a cannabis business had total overhead costs of $100,000 and total revenue of $500,000, its COR would be 20% ($100,000 รท $500,000 x 100 = 20%).
A high COR can be an indication of inefficient operations or excessive spending on overhead costs. In contrast, a low COR indicates that a company is operating efficiently and is better positioned to achieve profitability.
