Cannabis brands and retailers are increasingly discounting their products in a race to bottom pricing

Since the inception of the recreational cannabis market, Canadian and US cannabis retailers have consistently lowered product prices over the years due to increased supply in legalized areas. By the looks of it, cannabis retailers in both countries have lost billions of dollars in revenue.

While many find it easy to blame the recent Covid pandemic for the price drop, Raymer has a different theory. Krista Raymer is the founder of Vetrina Group, a Toronto-based cannabis consultancy. She believes the current trend towards higher discounts reflects the growing number of recreational cannabis products and brands available to retailers.

This has provided retailers with numerous product options and an increased inventory of unsold goods, particularly at a time when adult sales have been declining in several markets. In response, retailers are now handing out various rebates, discounts, and promotions to increase sales and reduce inventory. This comes at a time when headline consumer inflation continues to climb after rising 8.3% annually in April

Raymer strongly believes that this current discount trend will continue until more data and experience is gathered in the industry. This enables retailers to make better decisions related to pricing, inventory and product management. So far, the discount on adult cannabis sales offered by retailers in nine US states has doubled in the past five years. According to Headset, a Seattle-based analytics firm, the number rose from around 7% in 2017 to 15% in 2022.

The nine states include California, Arizona, Colorado, Massachusetts, Illinois, Nevada, Michigan, Washington and Oregon.

Discounts on retail cannabis flower in select US states

The discounts offered by retailers vary from one product to the next, but all product categories have seen huge increases since adult sales began in Canada and the United States. One of the many products worth mentioning is cannabis flower, which is the best-selling and most popular product in both countries.

In America, the cannabis boom has witnessed a surge in discounts, reaching double digits in several states in April. In Washington, the total discount for flowers reached about 20% in November 2021 and has increased to 23% in April 2022 so far.

Similar to Washington, Neva has also seen an overall flower discount of over 20%. Among the states monitored, only Massachusetts has relatively low discount rates. The total discount in the state is currently 2.7%. Although this number is low, it has doubled from 2018.

Retail discounts for cannabis flower in Canada

While cannabis users in Can Add do not enjoy discounts similar to their counterparts in the United States, discount rates in Canada have also increased over the years. According to available data, total rebates in all provinces across Canada saw the discount rate increase from 1% in 2019 to $3.4 in 2022. Among provinces, Ontario recorded the highest discount rate, set at 4.1% in 2022 .

The next province is Alberta, which saw a 3.8% increase in the discount rate, followed by British Columbia and Saskatchewan with increases in the discount rate of 2.6% and 2.4%, respectively. This rebate rate increase cost cannabis retailers in Canada approximately C$5 million.

Discounting differences between Canada and the United States are influenced by the structure of their supply chains.

In Canada, a larger percentage of discount costs are borne by cannabis retailers. Because in most federal states, state-based wholesalers regulate wholesale prices. With this structure, retailers buy cannabis products from wholesalers at a standard price and sell them at their most advantageous price.

In the United States, cannabis retailers have additional options when it comes to discounts because they can count on them covering some of the cost. Cannabis brands are able to set up programs where the distributor or manufacturer pays part of the rebate cost to promote their products to more customers

Product growth in Canada.

As cannabis discounts continue to increase with the increase in products available to distributors and retailers in the US and Canada.

For example, the number of cannabis products available to retailers in Colorado, California, Michigan, Oregon, Washington, and Nevada increased 80% between 2018 and 2022. There are currently about 5,000 cannabis brands manufacturing about 190,000 products in the states as of the first quarter of 2022.

Meanwhile, in California, the number of cannabis products available has quadrupled in four years, with approximately 40,000 products sold by retailers in the first quarter of the year. In the first quarter of 2022, Canada had approximately 10,000 available cannabis products manufactured by 1,400 brands. That’s not bad for a country that legalized the sale of adult-use cannabis in 2019 and has just 64 brands producing 500 cannabis products.

However, according to Raymer, the discount itself has its dark side as it is used as a control to increase SKU selling velocity. However, the challenge here is that one has to increase the speed appropriately to counteract the discounting costs. Ramer added that discounts are very detrimental to the cannabis business and the industry at large if such an action cannot be implemented consistently. This means that retailers and distributors have to be very specific with discounts.

Ramer suggests that retailers and distributors should learn the unintended and intended effects of discounts and develop better advertising, discount and pricing strategies. She added that there have been some massive changes in discounting. For example, discount an entire category. Rather, retailers need to be more specific when discounting their products and the number of products available for the discount at any given time.

Conclusion

The current trend of increasing discounts reflects the growing number of recreational cannabis products and brands available to retailers. This current trend is expected to continue until more data and experience is gathered in the industry. This enables retailers to make better decisions related to pricing, inventory and product management.

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