After blockbuster years in 2020 and 2021, some U.S. cannabis markets are experiencing price declines.

BDSA reports wholesale cannabis prices have dropped, along with edibles retail prices across the market research firm’s tracked adult-use markets. BDSA discussed these trends in a webinar, titled “Pricing Compression in an Evolving Cannabis Market,” on Dec. 13.

Cannabis Products recently spoke to Brendan Mitchel-Chesebro, analyst, BDSA, about recent market conditions and expectations for 2023.

CP: How would you describe the way pricing of cannabis products has changed over the last year? Has inflation played a role? 

BMC: Per BDSA Retail Sales Tracking data, equivalent average retail cannabis prices have fallen approximately 20% between Q3 2021 and Q3 2022, a larger decline than any previous 12-month period.

Wholesale cannabis prices have also seen a sharp decline in mature markets, with data from Apex trading showing that the price of a pound of cannabis has fallen approximately 50% in Colorado over the past two years, while Oregon has seen an approximately 36% decline in the price of a pound of cannabis over the same period.

There is no evidence that inflation has played a direct role in driving cannabis pricing, but inflation has had a significant effect on the profitability of licensed cannabis businesses.

CP Are there particular product segments that have seen more change in pricing than others? If so, which ones? 

BMC: BDSA data show that flower and shake/trim/light experienced the steepest price declines. Across BDSA-tracked adult-use markets, flower saw an approximately 25% decline in equivalent average retail prices between Q3 2021 and Q3 2022, and shake/trim/light showing an approximately 35% decline in equivalent average retail prices across that same time period. 

Across BDSA-tracked adult-use markets, equivalent average retail prices for the edible category declined approximately 15% between Q3 2021 and Q3 2022.

CP: Have changes in pricing affected how consumers shop? If so, how? 

BMC: If we look at analysis examining BDSA’s data about baskets, we can see that even with price compression, average basket size in Arizona, Massachusetts, Nevada, and Oregon declined, and only moderately grew in California and Illinois versus the same period a year ago. 

Falling prices in Arizona, Illinois, and Massachusetts were enough to see the number of average baskets per day increase in Q3 versus the same period a year ago, as lower prices enticed some unregulated purchasers back to the regulated market, converted some new cannabis consumers, and encouraged some existing consumers to purchase more frequently due to promos and special discounts.

While basket sizes and the number of baskets differed based on market maturity and concentration, falling prices did see consumers adding more items into their baskets this year than in the same period a year ago. And though more items per basket is a positive for retailers and brands, the additional items were not enough to outweigh falling prices in most mature markets (CA, CO, NV, OR).  

CP: Are there any state markets that have been more affected than others? If so, which ones? 

BMC: In general, newer and more consolidated markets like Illinois, Massachusetts, and New Jersey maintained higher ARPs and had lower price declines from January to October than less concentrated adult-use markets like Arizona, California, Colorado, Michigan, and Nevada.

CP: What do you expect to happen with pricing with newly launching adult-use markets like Missouri and Maryland?

BMC: Typically, as new adult-use markets launch, prices see a small spike due to increased demand from the expanded consumer base, then gradually decline as supply improves and more brands and retailers enter the market. The Arizona market, which launched adult-use sales in January 2021, saw equivalent average retail prices rise approximately 12% between Q4 2020 and Q1 2021. After this initial spike, retail prices gradually fell, with BDSA data showing that equivalent average retail prices declined approximately 6% between Q1 2021 and Q1 2022.

It is important to note that every market launch is unique — markets with much more limited retail availability and supply constraints at the start of adult-use sales can expect a more dramatic jump in retail prices, while more mature markets with a wide retail availability and sufficient supply will see a lower jump in average retail prices.

CP: What can we expect to happen with pricing heading into 2023?

BMC: Price compression presented challenges for the cannabis industry in 2022 and will likely continue into 2023. Prices are unlikely to return to past COVID-era highs in 2023 without significant mitigating factors such as a significant reduction of flower cultivation capacity, increases in energy/water costs, substantial retail closures, and/or wide-spread oligarchic consolidation of cannabis brands. Prices will continue to face stiff pressure in mature markets in 2023, while emerging markets in New Jersey, New Mexico and New York will continue to open with high price per gram and maintain higher prices until supply outpaces demand and there’s more competition.

CP: Is there anything else you’d like to add?

BMC: Significant price declines too far, too fast can negatively impact elasticity, making in-store promos less effective. While promotions and discounts can be effective at increasing traffic and basket sizes, those operating in mature markets should be conscious of the effect that price pressure has on the viability of these types of promotions.

In an increasingly challenging market, strong partnerships and cooperation between retailers, vendors, cultivators, and wholesalers become critical for mutual success. Increased communication, data sharing and collaboration will be increasingly important across all markets in the coming years as brands and retailers will need to be more agile and expedient with deploying timely operational decisions and dynamic pricing strategies. 

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