Cannabis Brands and Retailers Are Increasingly Discounting Their Products in a Race to the Bottom Pricing Model
Since the launch of the recreational cannabis market, Canadian and U.S. cannabis retailers have continuously discounted product prices over the years due to increasing supply in legalized areas. As it stands, cannabis retailers in both countries have forgone revenues worth billions of dollars.
While many find it easy to blame the recent covid pandemic for the price decline, Raymer has a different theory. Krista Raymer is the founder of Vetrina Group, a cannabis consulting company based in Toronto. She believes the current trend of increased discounting prices is a reflection of the growing number of recreational cannabis products and brands available to retailers.
This has made available to retailers numerous product options and an increased stock of unsold goods, especially at a period when adult-use sales have declined in several markets. In reaction to this, retailers are now dishing out various discounts, markdowns, and promotions to increase sales and reduce stock inventories. This is in a period where entire consumer inflation keeps increasing, having surged by an annual 8.3% in April
Raymer strongly believes this current discounting trend will continue until more data and experience is gathered in the industry. Through this, retailers will be able to make better decisions concerning price, inventories, and product management. So far, the discount offered by retailers on adult-use cannabis sales in nine states combined in the United States has doubled in the last five years. The number which was around 7% in 2017 surged to 15% in 2022 according to Headset, an analytic firm based in Seattle.
The nine states include California, Arizona, Colorado, Massachusetts, Illinois, Nevada, Michigan, Washington, and Oregon.
Retail Cannabis Flower Discounts in the Select U.S. States
Discounts offered by retailers vary from one product to the next, but all product categories have witnessed a huge increase since adult-use sales kicked off across Canada and the United States. One of the many products worth mentioning is the cannabis flower which is the top-selling and most popular product in both countries.
In America, cannabis flower has witnessed an increase in discounting which had reached double-digits in April across several states. In Washington, the overall flower discount reached about 20% in November 2021 and so far has increased to 23% in April of 2022.
Similar to Washington, Neva has also recorded a total flower discount of over 20%. Among the states being monitored, only Massachusetts has relatively low discount rates. The total discount in the state is presently at 2.7%. Even though low, this figure has doubled from what it was in 2018.
Retail cannabis flower discounts in Canada
While cannabis users in can add do not enjoy similar discounts as their counterparts in the United States, discount rates in Canada have also increased over the years. According to available data, overall discounts in all provinces across Canada recorded a surge in discounting rate from 1% in 2019 to 3.4$ in 2022. Among the provinces, Ontario experienced the highest discounting rate which was pegged at 4.1% in 2022.
The next province is Alberta which recorded a 3.8% increase in discounting rate, then comes British Columbia and Saskatchewan with a 2.6% and 2.4% surge in discounting rate. This increase in discounting rate cost cannabis retailers in Canada about 5 million Canadian dollars.
Differences in discount rates between Canada and the United States are influenced by the structure of their supply chains.
In Canada, a larger percentage of the discounting cost is absorbed by cannabis retailers. This is because state-established provincial wholesalers regulate the wholesale prices in most provinces. With this structure, retailers buy cannabis products at a standard price from wholesale and sell at the price best comfortable for them.
In the United States, cannabis retailers have additional options as regards discounting given they can bank on their ears to absorb some of the cost. Cannabis brands ar able to establish programs where distributed or producers absorb some of the discounting cost to promote their products to more customers
Product growth in Canada.
As cannabis discounting continues to increase with the increase in products available to distributors and retailers in the U.S. and Canada.
For instance, the number of available cannabis products to retailers in Colorado, California, Michigan, Oregon, Washington, and Nevada increased by 80% between 2018 and 2022. Presently, there are about 5,000 cannabis brands manufacturing approximately 190,000 products across the states mentioned in the first quarter of 2022.
Meanwhile, in California, the number of available cannabis products quadrupled in the space of four years with about 40,000 products being sold by retailers in the first quarter of the year. In the first quarter of 2022, Canada had about 10,000 available cannabis products produced by 1,400 brands. This isn’t bad for a country that legalized adult-use cannabis sales in 2019, having just 64 brands producing 500 cannabis products.
However, according to Raymer, discounting itself has its dark side in that it is used as a control to boost SKU’s sales velocity. Although, the challenge here is that one needs to adequately increase the velocity to counteract the discounting cost. Ramer added that if such action can’t be executed consistently, discounting becomes very damaging to the cannabis business and the industry at large. Thi means retailers and distributors have to be very specific with discounting.
Ramer suggests that retailers and distributors come to learn the unintended and intended impacts of discounting and establish a better promotion, discounting, and pricing strategies. She added that there have been some massive transitions in discounting. For instance, discounting a whole category. Rather, retailers need to be more precise with their products when discounting, and the number of products available at any given time for the discount.
The current trend of increased discounting prices is a reflection of the growing number of recreational cannabis products and brands available to retailers. This present trend is said to continue until more data and experience is gathered in the industry. Through this, retailers will be able to make better decisions concerning price, inventories, and product management.