Canadian cannabis retail prices declined in 2021, led by vapes, concentrates

Retail prices for Canadian recreational cannabis products fell across the board in 2021, as retailers and producers sold them for less to entice price-sensitive consumers and capture market share.

The 2021 market data from Seattle-based cannabis data analytics firm Headset covers the province of Ontario, Canada’s largest market, the key Alberta and British Columbia markets as well as Saskatchewan.

Headset uses equivalized price data, which adjusts prices across different product size formats by measuring the retail price for:

  • A gram of flower, concentrates, pre-rolls or vape pens.
  • A milligram of THC in beverages, capsules, edibles or topicals.

On that basis, prices declined for every Canadian cannabis product category during the third full year of Canada’s evolving adult-use marijuana market, which launched in late 2018 with relatively high prices amid product shortages.

Canadian cannabis industry insiders say some level of continued price compression might remain on the horizon in 2022.

However, improving efficiency and lower costs in both cannabis retail and production might help Canadian cannabis companies stay afloat in a low-price environment.

Biggest price declines in vape pens, concentrates

“There is no single (Canadian cannabis product) category that has a higher equivalized price at the end of the year than it did at the beginning of the year, with the standouts being vapor pens and concentrates, both having a decline in equivalized price of 35% from January to December,” said Cooper Ashley, Headset’s senior data analyst.

Retail prices for the most popular product category, cannabis flower, declined less precipitously.

The price of a gram of flower fell 16% over the course of 2021, from 6.74 Canadian dollars (roughly $5.40) in January to CA$5.70 by December.

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The price of cannabis edibles, measured per milligram of THC (a rough indicator of potency), fell by 11% from CA$0.72 to CA$0.64 over the year.

In the case of pre-rolls, the equivalized price for a 1-gram joint fell 19% over 2021, from CA$10.27 to CA$8.33.

But the average package, or item, price tracked by Headset simultaneously increased by 6%, from CA$17.04 to CA$18.05.

“I think that is a telling signal that customers are choosing larger (pre-roll) package sizes, which would drive average price up, but would drive the average price per gram down,” Ashley explained.

Retail price wars

Canada’s declining retail cannabis prices in 2021 took place as some major Canadian cannabis retailers rejigged their strategies to focus on selling lower-priced products to attract customers.

After a merger, multiprovince retail chain Nova Cannabis rebranded its store portfolio to the deep-discount “Value Buds” concept, with 73 of Nova’s 74 stores now operating under that banner.

Nova Cannabis Chief Operating Officer Marcie Kiziak said Value Buds’ price strategy is working.

“We recognized that there was a huge, underserved part of the population, which was the folks who were looking for your big bag, the folks who had a lot of cannabis knowledge and who weren’t looking for that Apple Store-type experience.”

Selling high volumes of product efficiently with reduced transaction times are the keys to maintaining profit margins in a discount cannabis setting, Kiziak added.

High Tide, a larger Canadian cannabis retail chain, also is transitioning its portfolio of more than 100 stores to a members-only “discount club” concept with the goal of enticing consumers away from the illicit market.

A producer’s perspective

Beena Goldenberg, CEO of Canadian cannabis producer Organigram, drew a distinction between declining retail cannabis prices and wholesale price dynamics, citing the discount retail trend.

“Our pricing might be the same, but the consumer’s getting the better price because the retailers are taking less,” Goldenberg told MJBizDaily.

She observed that producers already experienced significant price compression for cannabis flower before 2021’s declining retail price trend.

“Go back a year before, and there was tremendous compression on the flower side,” she said.

Still, Organigram’s average selling price for cannabis flower decreased to CA$1.89 per gram in the first quarter of its 2022 fiscal year, from CA$3.24 in the first quarter of fiscal 2021, according to a regulatory filing.

Goldenberg attributed that falling average wholesale selling price to changes in product mix and changes in regional sales trends.

“The more you sell in Ontario, the lower your average selling price, because it’s the most competitive market, (the) most price-compressed market.”

Despite the lower prices, Goldenberg was optimistic that larger producers such as Organigram are improving efficiency as the industry matures, making room for margin improvement.

Looking to 2022

Headset’s Ashley said the market data firm doesn’t have any specific pricing forecasts for 2022.

Still, he expects to see “a slowdown in this decline in price” in the year to come.

“I would doubt that we would see the same relative decreases over another year,” Ashley said.

“What we tend to see at this age of a market is more of a focus on differentiation (within) the market, like brands providing value-oriented products, as well as midtier products, as well as premium products, and then really focusing in on those different customer niches.”

Nova Cannabis’ Kiziak still sees price compression in the context of a cannabis market that’s oversupplied.

“I think that what needs to happen is, cannabis needs to be accessible to people who want it,” she said.

A 35% reduction in the price-equivalized price of vape pens over one year “is a significant drop,” Kiziak added.

“But it’s got to get to a place where it’s acceptable and where people are purchasing it. And so it’s a delicate balance between those two things.”

Organigram’s Goldenberg believes the Canadian market has “just started to see the impact of the discount retailers in the last quarter.”

“So I think you’re going to get a little bit more of that into 2022,” she said.

“It’s a tough market. There’s going to be a couple of players who have lost market share that will forfeit the margin to gain consumers, and there will be some further price compression in certain categories, I think, that’s going to happen.

“But I feel like the flower (price) number, it’s stabilizing – I don’t think there’s going to be a lot more movement on flower from the producer side,” Goldenberg continued.

“Simply because, at some point, you can’t pull more costs out, and it doesn’t make sense to keep doing something that you can’t make money on, right?”

Solomon Israel can be reached at solomon.israel@mjbizdaily.com.