In the current context of market contraction, inflation, and economic crises, sales respond in part to price levels. 

Retailers’ Spreads: Among The Highest In The US

“IL retail prices (flower) are down 15% YTD; the decline is somewhat similar to the 13% YTD drop we calculate for PA and the 12% drop for FL,” Zuanic said. He noted that Illinois' flower prices (3.5g pack sizes) at $15.69/g are 16% higher than Pennsylvania's ($13.55) and 43% higher than Florida's ($10.99).

“We also estimate that retailers' spreads are among the highest in the country (but down 20% YTD),” said Zuanic. “Although IL prices vary across operators, the disparities are not as wide as we saw in PA and FL, with only Curaleaf 18% below the state average in the state [1% below in PA].”

'Down 20% YTD'

How Big Is The Price Disparity In Illinois?

According to Zuanic, the price disparity range goes from -18% to +6% whereas in Florida, it ranges from -43% to +23%. In PA from -19% to +13%.

Relatively speaking, supply seems to be tighter in Illinois than in Pennsylvania.

Range in SKU counts between operators: An important difference is that in IL, SKU counts vary a lot across operators compared with Pennsylvania. “In IL, regarding total flower SKUs, one company (Cresco) had 239 SKUs or 82% above the market average, while Curaleaf only had 55 (58% below the average); in PA, the high was “only” 46% above (Green Thumb) and the low was only 28% below (Jushi).”

Moreover, four companies had more than 170 flower SKUs per store on average in IL. Including Cresco (239), Jushi (187) (OTC:JUSHF), Verano (179), and Green Thumb (176) (OTC:GTBIF).

“42% of flower SKUs were above the 3.5g pack size, but four companies were well-above that average (a sign of a more promotional stance?): MariMed 60%, Parallel 53%, Curaleaf 51%, and Ascend 48% (CSE:AAWH) (OTCQX:AAWH).”

What Are Price Differences Across Operators?

Unlike other markets, Zuanic found prices across operators to be similar, with Curaleaf being the exception.

“Of the 11 operators reviewed (55 stores in total), average prices for 10 were -5% to +6% vs. the average (Curaleaf was 18% below the average),” Zuanic said and explained prices in Florida and Pennsylvania prices were anywhere from -19% to +13% above the average.

In Illinois, those above the average include: MariMed (Thrive brand) +6%; PharmaCann (Virilife) +5%; Jushi (Beyond/Hello) +4%; NuEra +4%; and Cresco (Sunnyside) +2%.

Ascend -1%; Verano -2%; Green Thumb (Rise) -3%; Columbia Care (Cannabist) -4%; private MSO Parallel (Windy City Cannabis) -5%; and Curaleaf -18%, were below the average.

Illinois wholesale prices: According to Zuanic, companies “have alluded to softness in wholesale prices in several states,’ including states like Illinois and Pennsylvania or “erstwhile licensed-restricted states (MA/MI).” However, Zuanic said there are still significant differences.

Wholesale prices as of 9/30 were $3,616 per pound, and are down only 7% YoY, while MA is at $2,301/lb, down 35% YoY, and MI is down 55% YoY to $933/lb (YoY: AZ -46%, CA -48%, CO -33%, OK -33%, OR -44%, and WA -21%), according to Cannabis Benchmarks (CB).

“States with wholesale prices below $1,000/lb include AZ, CA, CO, MI, OR, and WA. CB does not track wholesale prices for states like PA, MD, or NJ. All this said, with retail prices falling more than wholesale prices in IL, retailers' gross profits per gram have dropped,” he said.

Stock picking?

“With MSOs trading near historical lows, we prefer to opt for quality names (more substantial balance sheets; less execution risk; depth in attractive states; and a track record of providing realistic guidance) vs. the necessarily cheaper EBITDA multiples in the group. Think of this report as 'Food For Thought,'” Zuanic concluded.

Imagen de Nattanan Kanchanaprat en Pixabay.