WORKWEEK

In Ireland, consumers can pay up to $500 USD for an ounce of cannabis.

Thankfully, in North America the prices consumers are asked to pay to purchase an ounce of cannabis is significantly less.

The Highs & Lows

In California, consumers can purchase an ounce of cannabis for less than $100.

That said, such low prices are uncommon in North America today with medical patients in markets such as Missouri paying twice this price for an ounce of cannabis, and quadruple this for top shelf flower.

What Determines Products Prices?

There’s several factors that determine the prices of cannabis products, however, market maturity is typically the most influential factor.

When a new market opens up, more often than not there’s an immediate supply shock and producers can seemingly sell cannabis products that would otherwise be headed straight for the trash can in mature markets. 

Conversely, in more mature markets such as Washington, Colorado, Oregon & California producers are required to produce very high quality cannabis products to stand any chance of succeeding, however, despite pouring all of their effort into producing these products – prices remain extremely low in these markets.

This price compression has been one of the primary problems plaguing the California cannabis market in recent times.

The Cost of Cannabis In Canada 

In Canada, the average price of cannabis products continues to decline.

Over the course of 2021, the average price per gram of legal cannabis flower fell 16% from approximately $6.74 Canadian dollars in January to $5.70 Canadian dollars by December of the same year.

Edibles fell 11%, going from $0.72 CAD per milligram of THC to $0.64 CAD.

The price of pre-rolled joints fell nearly 20%, going from $10.27 CAD to $8.33 CAD. 

For consumers, this is great news as it allows them to purchase cannabis products at a perpetual discount, however, for producers such price compression will be enough to send a series of Canadian companies straight towards bankruptcy.

The Cost of Cannabis In The U.S

Courtesy of the United States federal governments refusal to legalize cannabis on a federal level, each of the 18 states that permits adult use cannabis have adopted their own unique set policies that impact the prices of cannabis in these regions.

Nonetheless, the following report from New Frontier Data paints a fantastic picture of the continued price compression legal and illicit cannabis companies are having to contend with in the United States in 2022.

Per this report, the average price for an ounce of cannabis across America in 2022 is $294 USD, going from $325 in 2010 (averaging both the legal and illegal market).

Long term, however, it looks very likely that this number will continue to decline as more & more markets mature, which historically has only resulted in one outcome.

Lower prices for cannabis consumers.

The Illicit Market

Despite 18 states allowing adults to access cannabis products, and 36 states allowing patients to access medical cannabis products – the illicit cannabis market in the U.S continues to command significant market share.

In fact, an estimated $70 billion USD was spent on illicit cannabis in the United States in 2021, with consumers spending close to $8 billion USD on illicit cannabis products in California alone in 2021.

Texas is also one of the largest illicit cannabis markets in the United States, with consumers spending an estimated $6 billion USD on illicit cannabis products.

That said, Texas is by no means the only state in the U.S where consumers are spending billions of dollars on illicit cannabis products.

• Indiana $1.8 billion USD
• Georgia $2.2 billion USD
• Tennessee $2 billion USD
• Kentucky $1.1 billion USD
• Wisconsin $1.5 billion USD
• North Carolina $3 billion USD
• South Carolina $1.1 billion USD

Canada is seeing similar competition between the illicit and legal cannabis market where consumers collectively spent $2.82 billion CAD on cannabis products from the illicit market vs $4.37 billion CAD from the legal market in 2021.

Other Factors

• How many producers are in a region? 
• What are the state’s taxation levels like?
• What kind of quality and variety of products are available in a given area? The less competition, the more brands and retail outlets can charge customers.

• Is it a medical or adult use? Adult use states tend to lower prices on cannabis products much faster than medical states. 
• What type of cannabis product is it? Consumers are willing to pay more for products such as vapes, concentrates, & edibles vs dried cannabis flower.

Looking Forward

Federal legalization will likely have a very significant impact on the prices of cannabis products in the United States.

With this change, it looks likely that  States such as California who can successfully produce cannabis outdoors will be the biggest benefactors of this change.

That said, as Scott Jennings pointed out at last night’s the Green Paper community meet up in LA, consumers care about how cannabis flower looks, such that indoor grown flower will likely have a place in the industry long term.

Our Take

We expect the prices of cannabis products to continue decreasing, especially as the legal market will need to compete with the illicit market in order to continue growing.

During this time, it will become more important for companies to focusing on building brands, similar to how the consumer packaged goods industry operates in 2022.

Granted, cannabis is vastly different from the CPG industry, however, we think there are many best practices the cannabis industry can borrow from the CPG industry.