Cheaper pot coming… hopefully sometime soon

Cheap, plentiful and vapourized: A new report hints at a promising future for the pockets of cannabis consumers everywhere.

The report, provided by U.S. cannabis data analytics group Headset, shines light on recent pot pricing trends in Washington, California, Nevada and Colorado—four recently legalized states whose figures experts suggest could indicate the path forward for Canadian pricing in due time.

 

 

“Pricing could go down to the point that some cultivators don’t survive,” says Brad Poulos, instructor of The Business of Cannabis course at Ryerson University’s Ted Rogers School of Management in Toronto. Poulos expects the prices of Canadian bud will soon mirror pricing in states whose markets have begun to stabilize since legalizing the plant for recreational use (typically within two to four years); wherein prices are so low and cultivators so abundant, they may struggle to compete in a saturated market.

“2019 is going to be the year of the shakeout,” he expects, adding he’s not surprised by results of the study, which used mass consumer data to predict what Headset characterized as a “rapid shift” in prices over the next couple years. “Of course, it all depends on how expensive their operations are, but if prices dip much below three dollars per gram, I’d expect to see companies throwing in the towel and selling out or actually going under,” Poulos says.

The intelligence company’s report found that prices for recreationally sold, legal products—though it’s likely some products are also being used by medical patients—in more recently legalized states like California were the highest by a great margin (roughly $30.90 for the average cannabis product), while more settled states like Washington—which embraced legalization in 2012—enjoyed an average item cost of less than half that price at $15.33.

How long before cannabis prices settle?

Poulos foresees Canada’s hot new crop will cool down within a relatively short time. Explaining that it’s typical for prices to drop drastically in a new market once it’s reached equilibrium, he expects customers will get more bang for their buck when the federal government makes the legal product a more viable alternative to the illicit market. “It’ll depend on when the government achieves the goals set out in the Cannabis Act. They’ve got to drive people into the legal system,” Poulos contends.

Alongside long-reported and much-maligned cannabis shortages and the presence of a “sin tax”, he says there’s no denying illegal sources remain tantalizing to many consumers. “There’s still a significant premium dealing in the legal industry when you compare it to the black market.”

Though consumers are suffering a federal learning curve at the moment, Poulos says he’s confident that most issues will be corrected over the next year or so.

An employee inspects medicinal marijuana buds at Tweed INC., in Smith Falls, Ontario, on Monday December 5, 2016.

“From the time a market opens to the time it hits an equilibrium, the rule of thumb is usually about 18 months,” says Bethany Gomez, managing director of Brightfield Group, a market research firm for the legal cannabis industry in the U.S.

Gomez expects Canada’s timeline will tell a similar story. “That’s what it takes for all of the new cultivators and licence-holders to come [fully] online,” Gomez says. Once edibles, vapourizers and other cannabis-derivatives are for sale, she expects there will be another 18 months before that corner of the market steadies.

Getting serious about cannabis’ bulk-packaging market

Another segment of the Headset report attested that in the U.S., “bulk packaging stands to become a serious market” in North America, pointing out, for example, that California’s big-ticket pricing is gradually coming down since more “bulk buyers” have emerged—largely cost-conscious millennial [identified as those born between 1981 and 1996] and post-millennial consumers. The company suggests older generations are less frugal when picking their pot, especially with single-gram flower purchases.

Baby Boomers, those born between 1946 and 1964, and the Silent Generation, those born from 1925 through 1945, “are much more willing to buy premium single-grams,” the report reads.

Though she acknowledges the presence of thrifty millennials, Gomez is careful not to generalize: “It’s important to segment those age groups,” she suggests. While there are some who are looking for the greatest THC content for their dollar value, in Gomez’s experience, millennials are also the ones purchasing a lot of premium products that older generations aren’t as likely to touch. “In that consumer segment, that’s where you get the buyers of things like CBD topicals and beauty products as well.”

While neither Gomez nor Poulos could comment on existing trends in Canadian pricing, an early 2019 Brightfield Group report on Canadians’ feelings about the new industry found that a third of respondents who reported they weren’t buying from the recreational market said high prices were a primary factor for their abstinence.

That’s something legislators need to work to change, Poulos says. “We’ve got a black market to eliminate,” he urges. “We’ve seen, since October, that it’ll continue to exist, so the government needs to be directing pricing down now.”