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Thursday, Dec 2, 2021
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Most consumers seek bargains but some pay more for premium pot: pricing report

70% of Canadian respondents who shop the illicit market said it’s for better or lower prices

Role of pricing in Canadian and American weed markets industry report
price is consistently an essential part of consumers' decision-making process in both countries. Image via: 'Price. It’s complicated. How cannabis pricing differs from other consumer goods'

Whether it’s scoping out a deal for legal weed, or paying extra for premium products, price is a key factor in the consumer decision-making process in Canada and the U.S., according to a collaborative industry trend report.

As the global cannabis market continues to grow, the report, released Thursday, digs into pricing dynamics in the Canadian and American legal markets. Findings point to similarities between cannabis and traditional consumer goods markets.

Read more: Global cannabis sales grow 41% in 2021: BDSA

Cannabis market analytics firm BSDA, sales data analysis platform Hifyre and Deloitte Canada collaborated and combined their data for the report.

It shows that price is consistently an essential part of consumers’ decision-making processes in both countries.

34 per cent of Canadians say price matters the most when choosing a product. Image via Cannabis NB

“As the market continues to expand, understanding the role of pricing will be imperative to maximizing potential for brands and retailers,” said Kelly Nielsen, VP of insights and analytics at BDSA.

“Market growth brings opportunity, and we continue to see more brands and products entering the market. At the same time, though, consumers, manufacturers, and retailers are getting more sophisticated. In order to be competitive, it is important to understand how pricing plays a role in the decision-making process, and how pricing and product benefits can be leveraged to maximize potential.”

How price influences consumer choice

In states where cannabis is legal for adult and medical use, low prices were consistently among the top three drivers of product choice. Twenty-seven per cent of respondents said price influences their decision, behind taste and high THC content.

Price is the main influencer swaying Canadian product choice, with 34 per cent saying it matters the most.

And 70 per cent of Canadian respondents who shop the illicit market said it’s for better or lower prices.

Read more: Low prices and accessibility keep Canadian stoners loyal to illicit market: study

Read more: Cautious provincial pot policies prop up illicit market: study

On the other hand, “discerning” consumers will pay premium prices for superior products or benefits.

Canada craft cannabis prices and growth

Despite average prices, the Canadian craft cannabis market continues to grow. Graphic via ‘Price. It’s complicated. How cannabis pricing differs from other consumer goods’

The report uses the 1,000-milligram vape category in California as an example, since live resin is often seen as higher-quality in comparison to other vape methods. Data shows that live resin represents 33 per cent of the state’s total vape sales, up from 8 per cent in 2019.

And in Canada, findings note that the premium price on craft dried flower hasn’t deterred consumers, as the craft flower sector has grown significantly, jumping 158 per cent in the past year.

Read more: Canadian craft producers call for tax reform push ahead of Cannabis Act review

Branding isn’t playing a large role, yet

Like other consumer goods, cannabis users are more likely to choose a product that’s either a brand they’ve used before or once that’s been recommended, either by someone they know or a budtender.

Otherwise, brands aren’t top of mind at the moment.

Only 18 per cent of those surveyed in the U.S. said brand influences what they’ll buy, while “reputation or brand” didn’t crack the top-10 list of reasons to choose a product.

Strong brands boost GTEC's annual revenue up 270%

Tenzo Wedding Crasher by Avant Brands, a premium Canadian producer. Photo by Nick Laba

“The upside of weak branding across the cannabis market is that it presents an opportunity to steal top spots in market share,” reads the report, pointing to a shift in Canada’s vape market.

The top five vape brands in 2021 weren’t there two years ago, for instance.

However, given cannabis is a young industry, the report’s authors predict that, over time, strong branding could be a deciding factor in product choice, as it is in other consumer-goods categories.

Significant volatility in cannabis supply and demand

Canadian cannabis prices 2019 vs 2021

Graphic via ‘Price. It’s complicated.
How cannabis pricing differs from other consumer goods’

And like other products, supply, demand and cost play a role in pricing — but the price volatility related to cannabis supply and demand is significant.

When Canada first legalized weed, product supply was low, resulting in relatively high prices.

As supply went up, price dropped, with the average price per gram falling from $11.78 in the first half of 2019 to $7.50 per gram during the same time in 2021. Vape cartridges dropped 41 per cent from $32.03 per gram at legalization to $19 per gram one year later.

Read more: Canadian pot production slows as supply eases to 1.1B grams

“[G]iven the volatility of pricing, containing costs will be essential for responding appropriately to market and competitive activity while still achieving profit targets,” reads the report.

“There is no room for complacency in cannabis. Pricing, similar to other businesses levers in cannabis will continue to change rapidly. The most successful companies will need to be agile, using data and best practices to meet the complex challenges of a complex retail pricing environment.”

The report uses retail sales data from the first half of 2021 combined with recent consumer insights surveys from Deloitte and BDSA.

 

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