Why Higher Prices Aren't Always A Bad Thing: This Analyst Explains The Canadian Cannabis Flower Market

Cannabis flower prices seem to be inversely proportional to their sales, at least according to data provided by Seattle-based Headset which tracks six recreational cannabis markets, including California, Colorado, Michigan, Nevada, Oregon and Washington state.

Marijuana flower sales increased from $4.92 billion in 2020 to $5.49 billion in 2021, Headset data showed, while the price per gram of flower plunged over the same period, decreasing 14% from $6.78 in January to $5.82 in December 2021. The drop In prices was attributed to more production within the market and growers expanding their facilities, reported Marijuana Business Daily.

In Canada, licensed cannabis producers have become dependent on value flower, according to Cantor Fitzgerald’s Pablo Zuanic.

Big producers such as Canopy Growth Corp. CGC, Aurora Cannabis Inc. ACB, Tilray Brands, Inc. TLRY, OrganiGram Holdings Inc OGI OGI, and Village Farms Intl VFF reported that value flower accounted for a substantial part of their total recreational cannabis sales.

Last year, Zuanic said "focus solely on value flower per se need not be a negative … if companies have the right cost structure."

Canadians Prefer Quality Over Low Prices

Now, the analyst proposed in his recent note that the most effective pricing strategy is not cost-cutting, since the companies which continue to gain market share in Canadian flower seem to have prices per gram above the market average.

Most of those losing share have prices below the market average and in most cases have also cut prices the most,” he said.

More importantly, Zuanic pointed out that the five top Canadian LPs in the market share have opted for cost-cutting and are losing market share, except for Organigram, which is “the exception to the rule."

Interestingly, over the past two years, the number of those competing in the flower category increased to 126 in the second quarter of 2022, due to significant M&A activity and consolidation.

“We think the larger players for the most part may continue to lose market share, as price cuts are not enough,” the analyst said. ”The ones gaining share are not price discounters (ankle biters, as called by some) but those with more premium offerings.”

Is this hypothesis plausible?

Zuanic said Canadian consumers are maturing and embracing quality over low prices.

Still, “value certainly still plays a role with the top 5 LPs in terms of flower share being priced at a discount to the average,” Zuanic concluded.

Benzinga photo. Source: Image from Shutterstock

Posted In: Analyst ColorCannabisNewsPenny StocksSmall CapMarketscannabis flowerCantor FitzgeraldPablo ZuanicRecreational Marijuana

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