The Biggest Way Cannabis Products Differ From CPGs? Pricing, Pricing, Pricing, a New Report Says

Does cannabis pricing “behave like a typical consumer packaged goods (CPG) market?” asks the report. “Or are there other dynamics at play? The study, a collaboration among the market analytics company BDSA, the sales date analysis platform Hifyre and Deloitte Canada, goes on to suggest strategies for how companies confronting all this complexity take to stay competitive.

Sourcing its data from retail sales figures from early 2021 as well as consumer insights surveys, the report looked at:

Industry growth and purchasing drivers: Cannabis as an industry grew to $21.6 billion in 2020, a full 50 percent over 2019’s $4.4 billion. The forecast by 2026 is $62.1 billion. The major reason for this runaway growth, the report explained, comes down to one thing: “legalization.”

Consumers’ purchasing habits: According to a BDSA Consumer Insights survey, in states where both medical and recreational cannabis are legal, low price was one of the three main drivers of product preferences, the report said. The survey found that 27 percent of respondents specified low price as influencing them the most in their product choices (just after taste/flavor and the amount of THC).

Factors influencing choice were: THC, 57 percent; the quality of the high, 48 percent; taste, 36 percent; duration of the high, 34 percent; and flavor, 29 percent.

What makes cannabis different from consumer-packaged goods: Cannabis is different from CPGs because the relationship between its price and quality are not consistent. There are also enormous differences in price even for the same sku (the stock-keeping barcode) and same product size. Here, the report points to different regional competitors, local growing conditions and state excise tax frameworks. “There is no national pricing,” the report said.

What makes cannabis the same as consumer packaged goods: Deloitte cited a study by Drop Technologies in which fully 85 percent of young respondents (Gen Z and millennials) said they were likely to buy premium cannabis products if they saw sufficient value in them. In short, certain consumers will pay a premium for premium products. The example given was connoisseur-level live resin, a high-end vaping extraction process. In California, the study found, live resin constituted 33 percent of total vape sales California in early 2021, up from 8 percent in 2019. A big issue here, the study said, is that cannabis must be grown and processed in the state in which it is sold. That means differences between the same product in California versus Colorado.

Cannabis brands: Industry brands don’t yet command premium pricing on the strength of their names alone. “Reputation of a brand” was not a top-10 differentiator of consumers’ purchasing decisions, the report says. In fact, only 18 percent of respondents specified “brand” at all.

Supply and demand similarities: Supply and demand and cost of goods is just as much a force in the wholesale pricing of cannabis as it is in other CPGs, the report says. For example, the average price per pound of flower in California was recently $1,600, in contrast to $900 in Colorado. Additionally, pricing volatility related to supply and demand also plays a big role with cannabis, the report says. Pricing is going down as the supply increases.

Cannabis company strategies:

The advice the report suggested to companies working to stay competitive:

• For pricing: Continuously monitor product pricing in legal and illicit markets; use data to benchmark key performance indicators. Communicate a product’s qualities to validate its price tag. Understand the impact of regulations, taxation and retailer margins.
• For consumer choice: Identify what consumers want through market analytics; institute a high-quality assurance process; maintain high-quality standards across geographic boundaries.
• For branding: Create unique, relevant brands. Understand opportunities to enhance products within the scope of the relevant regulations.

“There is no room for complacency in cannabis pricing,” the report concludes. “Pricing, identical to other business levers in cannabis, will continue to change rapidly. The most successful companies will need to be agile, using data and best practices to meet the challenges of a complex, retail pricing environment.”