Pricing Compression of Flower in Ontario
While the price of necessities and commodities like food, gas, travel, and events are notably on the rise, the price of cannabis has gone in the opposite direction, according to Headset.
In the report released last week, “Cannabis Flower: Examining pricing compression in the US & Canada”, Headset details that the average item price for flower has declined in Ontario by 17% over the period of October 2020 to October 2022. The report compares the price of cannabis flower in California, Colorado, Michigan, and Ontario.
The equivalized (EQ) price shows an average price per gram (the total sales divided by the total number of grams of flower sold) for Ontario as $5.51/gram as of October 2022, whereas it was sitting up at $10.09/gram in October 2019.
Compared to California, Colorado, and Michigan, where pricing compression has accelerated over the two-year period, Ontario’s pricing compression has been slowing down (-27% in 2020, -11% in 2022).
In terms of retail margin percentages for 3.5g units of flower sold, Ontario’s market has the most consistent trendline, with a slow and steady decline over the last year compared to its volatile US state counterparts.
Regarding discounts, it’s difficult to see a consistent strategy across compared markets. The data reveals that it is the newest and oldest flower in terms of product age that is being discounted over “middle-aged” flower in Ontario.
Still struggling to find the optimum level of inventory to ensure product freshness, Ontario saw one-third of revenue in October 2022 coming from flower that had been stocked for greater than 365 days, with only 8% of revenue accounting for flower that had been on shelves for less than 30 days.
Basket Size Decreasing
Given all these factors, there has been a decline in Ontario’s average basket size from $56.20 to $39.78, a decline of 29% from January 2021 to October 2022. However, the average number of items per basket in Ontario only minimally declined since January 2021 and has remained consistent over the last year, suggesting that customers aren’t purchasing fewer items, they’re just buying them at a lower price.
Headset offers data to retailers as a means to help them put together an effective pricing and discounting strategy, offering retailers a viewing of a recent webinar “12 days of NOT discounting… Building holiday promos & avoiding the pitfalls of pricing compression,” as the holiday season approaches.