Weed Prices: Are We In A Race To The Bottom?

The first wave of private cannabis stores in Canada were designed to look like Apple stores, with iPads on white countertops to browse product selections. This elegant and persuasive design is sure to appeal to customers looking for a modern and convenient shopping experience.

Darren Karasiuk, CEO of Nova Cannabis, said, “There will be people who weren’t cannabis consumers before giving up Pinot Grigio for Pink Kush.

The stores were designed to make the customer feel aspirational, similar to how they would feel in a yoga studio or spa. The store features warm wood accents, greenery, and scented candles.

This year saw the rise of a new type of cannabis retailer: the discount store. These stores, modeled after Walmart, offer low prices to attract customers.

What Is Cannabis?

Cannabis is a plant species in the family Cannabaceae. It includes three primary subspecies: Cannabis sativa, Cannabis indica, and Cannabis ruderalis. Cannabis has been used for a variety of purposes, including for its medicinal and recreational effects. It is also known for its psychoactive compounds, such as tetrahydrocannabinol (THC) and cannabidiol (CBD).

How low can they go?

The company, based in Edmonton, owns and operates all 71 Value Buds stores in Alberta and Ontario. These stores are designed to cater to high-volume cannabis shoppers who are knowledgeable about what they want.

Alcanna, a major investor and private liquor retailer in Alberta, has the resources and strategies in place to sell dried flower at very competitive prices. Value Buds stores are currently selling ounces (28 g) of dried flower for as low as $56.57 before tax.

There is a market for premium cannabis consumers, but it is small compared to the value-focused customer base. According to Statistics Canada, 35.4% of cannabis consumers still bought from an unregulated source in 2020.

We’re focusing our strategy on current customers, and there’s still a lot of potential for growth in the unregulated market.

Cannabis shoppers place a high importance on pricing, with 34% of respondents citing it as the leading influencer of product choice, according to a report by Deloitte.

It is difficult to predict when cannabis product prices will level out. In states like Colorado and Oregon, there was rapid price compression due to oversupply. In those cases, prices gradually increased as competition normalized and consumers began to recognize the value in more premium products.

We expect a similar trend in Canada, where the licensing and distribution regulatory framework will create a more gradual entry of new suppliers and products to market.

The hidden cost of low prices

Retailers and brands have very few ways to differentiate themselves in the marketplace, as most stores carry the same products obtained from provincial wholesalers. Price is one of the few ways that retailers and brands can set themselves apart.

Retailers who are able to be competitive in the cannabis market will find that price is a very attractive strategy.

If many businesses adopt a similar approach, it will become increasingly difficult for us to retain our competitive edge. This would be a very unwise path to follow, as we would eventually be at a disadvantage.

The white label strategy is a great way to keep prices low, she said. By repackaging and selling cannabis from undisclosed sources, retailers can offer a discounted price. However, with profit margins already slim, businesses need to find ways to make up that revenue. This can be done by reducing operating costs or increasing prices for other products in the store, such as premium or craft products.

When adult-use cannabis was first legalized, prices were far too high, according to Jennawae McLean, the founder and CEO of an independently owned cannabis store in Kingston, Ontario, and the executive director of NORML Canada.

She was pleased to see prices decline—to a certain extent.

“Our prices are close to value brands, but we’re still not necessarily as low as them because we still have to pay a living wage and benefits,” she said in a phone call.

We’re the best team in eastern Ontario because we care about our employees and work to add value to their lives.

The store’s employees are better trained and more likely to be retained, improving the customer experience overall. However, the majority of customers don’t seem to care about or notice the store’s operating costs associated with employee training and retention.

According to McLean, discount retailers are not only competing on price, but also on the quality of their locations. Companies with deep pockets can afford to pay for prime real estate locations that are more visible and appealing.

Cannabis reward clubs are on the rise

High Tide is the latest company to join the race to provide discounts to customers through a club membership concept. In October, the company announced that Cabana Club memberships would be available in all 101 of its retail stores in Manitoba, Saskatchewan, Alberta and Ontario. This move demonstrates High Tide’s commitment to providing value to its customers.

CEO Raj Grover said that the Cabana Club currently has 270,000 enrolled members who take advantage of lower prices for in-house brands and accessories. Currently, there is no fee to enroll, but that may change in the future.

The company also plans to take on the unregulated market, which is estimated to be worth $3 billion in Canada. According to a report by Deloitte, there is still significant growth potential in the illicit market, as 70% of people who shop there do so because of lower prices.

“I think the illicit marijuana market is going to get thinner,” Grover said by phone. “So the action we’re taking now with the innovative discount club concept, the first of its kind in North America, I think will certainly make a significant contribution to the fight against the illicit market in Canada.”

Grover said that he is hopeful that he will be able to introduce the model to the US once Canadian-owned companies are able to enter the market. He added that he is looking forward to introducing the concept in the United States once the market opens up.