Is There an Ideal Price Point for Your Product?

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As the cannabis industry enters a trend that is about to become its biggest year of growth, understanding the competitive landscape is more important than ever. For many industry operators, this means a deeper understanding of some of the key factors for success, such as market saturation, category awareness and pricing. 

Pricing is arguably the most critical driver of a company's profitability and can become a differentiating factor between cannabis brands. Is your product premium? If so, can your price be communicated? How does your price compare to the competition? Is there an ideal price point that can attract the most customers? These are the questions that cause brands to ask themselves when determining their pricing strategy. 

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 While helping companies to further understand the price trends of the entire industry, they also help answer these questions. 

 More than 7,700 companies have provided strong support for 35% of all cannabis wholesale transactions in the United States, thus providing us with the country's most extensive cannabis wholesale data set. This year's report uses the pricing data of more than 109,000 unique SKUs to aggregate, and focuses on the top five market-ranking categories (cartridges, concentrates, edible and ingestible foods, flowers, and pre-rolls) by market share. . The guide aims to enable cannabis companies to make smarter and more strategic pricing and purchasing decisions. It provides a nationwide analysis and a state-specific analysis of 10 cannabis markets in the United States.

In the highly fragmented U.S. cannabis industry, prices can be used as a lens to assess the market dynamics and overall health of the cannabis economy in a particular state. These developments are usually driven by regulatory policies and have a lasting impact after many years of their adoption. Here are some important things in our guide.  

In California, wildfires in 2020 have had a major impact on the supply of cannabis throughout the state, thereby affecting prices. During the "crop" period, the state's bulk flowers usually see a seasonal price drop between September and December due to more supply on the market. This year, the average price of loose flowers fell by 10% in 2020, while it fell by 15% in the same period in 2019. We believe that wildfires are responsible for the lower crop season decline, coupled with the continued strong demand for flowers by consumers in the state.

In other states, high pricing can be attributed to specific market factors. Alaska flowers are the most expensive flowers in the study and are known for their high prices in all product categories due to high tax rates and high distribution costs. Maryland is another expensive state, well-known for its permit caps for cultivators and processors, and relatively few products and brands are available compared to other markets.

In Michigan, the introduction of marijuana for adults has led to interesting price dynamics. After starting adult use sales in December 2019, the state saw a severe shortage of products as suppliers tried to keep up with the influx of new consumer demand while facing operational challenges due to social distancing. Although the number of sellers increased by 184% in 2020, Michigan is still relatively expensive in most categories. Most notably, the price of ink cartridges across the state rose 44% year-on-year to $30 per gram. 

Similarly, during the pandemic, the demand for flowers in Arizona is also higher. It is expected that the newly implemented laboratory testing requirements for adult use will cause production bottlenecks and thus lead to supply shortages. This resulted in average flower prices increasing by 32% year-on-year or reaching US$2,212 per pound. As Arizona transitions from medical use to adult use only, despite the easing of the test backlog, the demand for cannabis remains at a record high, and the demand for flowers is in short supply. The pricing there depends mainly on how quickly the cultivator can bring more flowers to the market. When other states (especially on the East Coast) consider opening up the adult market, they can look at price trends in more mature markets as a guide to define their licensing structure and establish a healthy cannabis market. It is widely believed that Arizona has a booming medical market, and the state is now ready to have one of the fastest leisure and entertainment markets in the United States with diversification and increased mobility. 

What is the healthy marijuana market like? In cannabis, regulations regarding license caps, license fees, and vertical integration may prevent a state from naturally performing supply and demand dynamics. In states with a more open cannabis economy, rather than states dominated by a small number of participants due to the licensing structure, we tend to see lower wholesale prices, higher taxes per capita, and smaller black markets.  

Since 2014, adult use of marijuana has been legally used in Colorado, and it can be seen as an example of the health marijuana market in the United States. Due to the diversification of brands across the states, prices are still relatively low. Of all the states we studied, except for edible and edible foods, Colorado had the lowest prices for all categories of products. For this category, the average price in Colorado ($0.09 per milligram, compared to the national average of $0.08). 

Given the relatively attractive wholesale prices (translated into competitive consumer prices), Colorado reported that marijuana sales in 2020 reached a record $2.1 billion. Coupled with a moderately effective tax rate of 17%, Colorado's reported per capita legal cannabis tax will reach $60 in 2020, according to our analysis of the Colorado Department of Revenue. On the contrary, according to the data analysis of the Illinois Department of Treasury, Illinois is one of the markets dominated by the restrictive license structure, so the number of participants is relatively small, and its tax per capita is relatively small. Colorado's per capita pharmacy ratio is also one of the highest in the country, with 14.1 pharmacies per 100,000 residents, providing potential consumers with a wide range of product access channels. The combination of attractive prices and extensive consumer access to products has made the illegal market no longer prosperous in Colorado. 

As several newly legalized states begin to sell for adult use, it is important to study the underlying factors behind cross-market price differences. Restrictive licensing structures with ceilings and high entry barriers may result in lower-than-expected tax revenues, larger-than-expected illegal markets, and push consumers to neighboring countries, thereby undermining many of the purposes of expanding adult use. Governments should seek to establish a vibrant infrastructure of cultivators, processors and distributors through regulations. Looking ahead, the newly legalized states can use 

 As a resource for understanding market-specific and nationwide dynamics. We believe that this report is an important input that states and companies can use together to build a fair and thriving cannabis industry. 

For a deeper understanding of the data behind the report, please contact me via the following method: alex.feldman@leaflink.com.

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