How Cannara Biotech is dominating the new wave of cannabis cultivation
Nicholas Sosiak, CFO of Cannara Biotech Inc., discusses the accelerated retail price compression of cannabis products
Price skimming is a common pricing strategy that companies use to maximize profits by initially charging the highest possible price in any new industry and gradually discounting prices over time to address a broader and more price sensitive segment of the market.
Three years into cannabis legalization, we’re now seeing an accelerated retail price compression, which is favourable for the consumers but not all producers are prepared to support this downward price trend.
In Quebec, the most commonly sold product is the 3.5 gram dried flower, which accounts for the majority of all dried flower sales.
- Products priced between $20 and $30 are thriving, which is putting pressure on producers that are now adjusting their pricing below the $30 mark.
- Rose Sciences, for example, reduced retail pricing by as much as 44 per cent from $40 to $29.80 per unit, which was a wise play, but is this sustainable?
- Emerald Health was priced competitively in that $20 to 30 bracket but they exited the space because of accumulated losses.
- The larger players like Hexo and Canopy Growth are introducing new aggressively priced products to align with consumer demand. These price SKUs, however, will have a dramatic impact on gross margin.
We’re also seeing this trend across other categories. Unless these producers had anticipated such a steep decline in retail prices, making the business case work will become increasingly challenging.
With that said, there is a second wave of producers who saw this coming and aligned pricing and product quality with consumer expectations — trading short-term profits for long-term sustainability. We expect these newcomers to gain market share rapidly just as Cannara has in the last six months.
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