Licensed pot producers weigh strategies after OCS margin cut
Companies aren't required to pass along the savings to consumers by lowering their prices, so many observers believe licensed producers will adopt a range of pricing strategies.
Canopy Growth Corp. will hold its prices as licensed pot producers weigh whether to pass along to consumers the savings from the Ontario Cannabis Store’s forthcoming margin decrease.
The Smiths Falls, Ont. cannabis company behind the Tweed, Ace Valley and 7Acres brands isn’t budging on what it will charge because the pot market is already “highly competitive,” chief executive David Klein said in a statement to The Canadian Press.
Canopy declined to say more about the pricing decision, which comes after it laid off 800 workers and the company reporting a $266.7 million net loss in its third quarter.
The decision comes after the OCS, the province’s pot distributor, said last week that it would reduce the margins it makes on weed sales this September in a move expected to put $35 million back in the hands of licensed pot companies this fiscal year and $60 million in the 2024 fiscal year.
Companies aren’t required to pass along the savings to consumers by lowering their prices, so many observers believe licensed producers will adopt a range of pricing strategies when the new margins come into effect.
“It’s reasonable to think that some cannabis producers and retailers may decide to decrease their prices after the OCS announcement just to be more competitive, provided that they have the wiggle room in their market margins,” said Sherry Boodram, chief executive of CannDelta Inc., a Toronto cannabis consulting company.
“But certainly in other cases, some producers and retailers may not want to decrease their prices.”
Making that decision is no easy task when many licensed producers are awaiting details about how deep the cuts will be.
Meanwhile, Moncton, N.B.’s Organigram Holdings Inc. refused to discuss its pricing model, but spokesperson Paolo DeLuca says it will ensure prices are attract to consumers and generate a reasonable margin.
Cannabis companies, which have endured rounds of layoffs and facility closures in recent years, are also in a particularly tough spot when making pricing decisions because they have already slashed their own margins several times in recent years.
“Several companies are already actively doing price drops, so price drops are very, very popular,” said Lisa Campbell, chief executive at cannabis marketing company Mercari Agency.
The average price for cannabis was $11.78 per gram at the start of 2019, shortly after legalization, but fell to $7.50 per gram in 2021, a report from Deloitte Canada and cannabis research firms Hifyre and BDSA said.
The average price for vape cartridges has similarly fallen by 41 per cent from $32.02 per gram around legalization to $19 per gram a year later.
