This is a question with which every scaled grow operation must contend and, if you are looking for a definitive answer, you found the right article.
Comparison of Industry Standard Pricing Models – by the Gram v. by the Hour
If you are relatively new to the cannabis industry, paying by the gram may seem like the ideal model to employ; a staff member is compensated only for the total weight of manicured product, preventing you from overpaying for a service which otherwise could fall short of your production expectations. However, a decision to pay for a haircut by weight employs the same logic, which is not only something you would likely avoid, but indicates an alternative model is likely ideal.
Paying by the gram encourages a frenetic pace, potential interpersonal issues, increases the risk of staff injury, discourages attention to detail resulting in poor quality output. Considering your harvest may also encounter other variable problems (over-drying and low density, brittleness resulting in higher-than-average popcorn-sized buds), the trimmer paid by the gram is financially disadvantaged for taking care of finer, more time-consuming product, which benefits neither the grow, nor the worker. The TrimForce Production Model takes into account all variable elements of the grow operation, and defines a method by which high-quality throughput and worker retention has been achieved by many successful, scaled grow operations.
First, What am I Buying?
Market pricing for by-the-gram trimming currently hovers between $0.25-$0.35 per gram (January 2022), which raises another important question: per gram of what? It is common for commercial grows with near-optimized (or even modestly efficient) processes to ignore this question during early phases of strategic planning, though, if you are to accurately capture cost-driver data and hope to improve, it should be considered first. Flower, shake (trim), and kief, are the three general, saleable end products of the final manicure trimming process, and waste products (stems (for the efficient process), and stalks (for the inefficient)) must be considered, too. Each must be weighed for compliance purposes, though, absent industry standards for weighing processes, that the latter three (shake, kief, and waste) are sometimes completely ignored when determining throughput per trimming staff member. This error can result not only in underreported productivity per worker, but potential compliance issues in waste management.
Many new operations fail to account (and some refuse to pay) for production of shake, and kief, though they are products of the trimming process converted into saleable goods (pre-rolls, butter, shatter, oils, etc.). Not only does failure to report leave any financial analyst (or potential acquiring entity) with a false representation of the cost to produce those products, but, depending on the level of pre-processing, this can result in a large loss for a trimmer paid by the gram. Once staff realize they are being shorted for their efforts, the backlash can be severe – from unionization attempts to destruction of brand equity – and recovery can become a daunting, and expensive task.
Why Would I Pay for Waste?
Unless converting to a secondary product, no operation would pay for trim waste, however, every operation pays for waste removal. The general objective of employing a trimmer is to ensure your final product is ready to be sold. Good trimmers will spend time removing “crow’s feet,” remnant twigs, and biomass from product to ensure quality, bag appeal, and salability. If bucking during the trimming process is required, trimmers are required to remove large stems and stalks, which occupies time otherwise spend trimming flower for compensation. The waste elements detailed are products of the trimming process which require time and effort to process, and their processed weight, and associated cost to produce, must be considered to not only ensure equitable compensation for effort, but to provide the operation seeking sustainable operation and improvement with accurate data.
Trimming by the Gram – the Numbers
Below is a relational overview of data reported from a semi-optimized Class C grow, based in Michigan (standardized for ease of interpretation):
While such statistics are strain-, and grow-quality dependent, the important observation here is non-flower trim products account for approximately 14% of all end products, by weight, for this harvest and strain. Ignoring the effort required to produce them would short paying the trimmer detailed above between $68.75 and $96.25, depending on the by-the-gram staff or service you employ. Further, If the labor cost to produce key outputs (shake/kief) is not considered, the true cost to produce end products which use them as inputs cannot be properly determined; effort required to produce is potentially underbilled and underpaid; the margin for flower is underreported (as it absorbs all the cost to produce while secondary products hold inflated margins, absent a labor cost driver); and, secondary products utilizing shake or kief as inputs appear inexpensive to produce as the primary cost driver (labor) for those respective inputs inaccurately rests at zero. There are scenarios in which such a plan can work, however, they are not generally found within the cannabis industry.
When does a Piecework plan work?
Piecework plans or piece rate models (as they are commonly known within legacy manufacturing operations), are excellent when products to be handled or produced are standardized. Under a piecework plan, a worker can expect to receive compensation for output per unit per time (one dollar for four tires inspected per minute on a production line, for example), with any output beyond a set threshold compensated in addition to the standard (as a performance bonus). Compensation issues arise, however, if problems manufacturing the inputs to be processed arise – if the line carrying tires broke down, it would not be fair to penalize the worker if he or she could not inspect four per minute as a result. Input standardization, and variable analysis, therefore, is critical to ensure compensatory equity, and not only within the automotive manufacturing realm.
Can a Piecework plan work in the Cannabis Industry?
To accurately pay by the gram (a piecework plan), a grower must know at least:
Average density of product produced per harvest, by strain
Average time to trim per worker by product size (popcorn, mid, large, cola)
Number and size of buds provided each worker, per unit time worked
Average waste per harvest strain by bud size
Average shake and kief per harvest strain by bud size
A standard deviation (or tiered target) for production by harvest strain and bud size to compensate for exceptional production
As is obvious, accurate and equitable piecework planning requires intense data collection and analysis, far beyond the standard for the average grow. Further, the above is not all-inclusive, but provides a starting point from which checks and measures can be used to ensure cost control against proper compensation. Importantly, even if the mentioned data were collected and interpreted properly, targeted cost savings would not be realized for the scaled and efficient grow, as seen below:
Over an 8-hour workday (7.5 hours of working time, not considering process loss), at current industry standard rates to produce, the labor required to produce the equal 625g batches of product (assuming it is standardized) would cost the same. Unless the operation considered is an inexperienced startup, or unnecessarily inefficient, 625g of product per 7.5 hour shift is a figure easily achieved by the average trimmer, or new trimmer with minimal training, which favors the hourly model. However, holding other variables static, if the product quality is poor, the cost to produce per gram relatedly rises under the hourly model as the average throughput for both drops, and the piecework plan worker is sharply disadvantaged in pay (as he or she physically cannot produce at a high level), and likely to turnover. Also, under the standard piecework plan, a threshold for a production bonus is also required, daily, which lowers the grower’s margin for harvests of already less-than-ideal quality even farther. Fortunately, there exists an alternative, permitting cost control, and worker retention, with relatively minor production planning.
What about a hybrid model?
The best model to ensure high quality, sustainable throughput for the cannabis manufacturing facility, while retaining and incentivizing performance of the workforce, is a hybrid model which combines elements of a piecework plan with a standard hourly rate. The TrimForce Production Model used by many Michigan Class C and multi-license facilities combines a standard hourly rate with a production bonus for top performers. Under the TFPM model, workers are ensured a sustainable income, regardless of the variability of the product they must process, while top performers (ideally, by the day) are incentivized with performance bonuses (additional compensation or sampling, where permissible).
Won’t a Piecework plan result in lower total cost?
In short, no. Unless the operation considered is woefully unoptimized from a production standpoint, the by-the-gram piecework plan model does not make sense from a financial or production standpoint. Beyond the breakeven, additional risks must be considered, such as increased on-the-job injury related to high performance pressure, interpersonal conflict – which can arise in the form of sabotage (we experienced in-house workers for clients stealing finished product from others to meet production quotas), elevated workforce turnover (related to performance pressures under a sub-optimized system), damaged service supplier relationships, and impeded workforce planning. Ultimately, the by-the-gram model is one which benefits neither the worker, nor the organization, in the long run, and should be avoided in favor of a model which fairly compensates people for quality work while ensuring operations cost control.