Debra BorchardtJuly 11, 2022
It seems Canadian cannabis consumers prefer to pay higher prices for flower. A new report from Cantor Fitzgerald’s analyst Pablo Zuanic found that most of the Canadian Licensed Producers (LP’s) increased market share with higher flower prices. The only exception to the rule was Organigram (NASDAQ: OGI), which saw its market jump dramatically after dropping prices almost by half.
Flower Power
Zuanic said he analyzed the 35 companies that accounted for 90% of Canadian flower sales in 2Q22 and looked at how those companies’ market share has changed over the last two years. Due to market competition, there are now 126 companies competing in the flower space versus just 53 two years ago. Consumers are spreading their money around and the once-dominant flower sellers are now seeing lots of competition. For example, in 2Q20 just 10 LPs accounted for 90% of flower sales. Fast forward one year to 2021 and there were 19 LPs and in the most recent second quarter, 35 LPs.
He found that the bulk of the companies gaining market share in Canadian flower actually have prices above the market average, while those losing market share have prices below the market average and in most cases have also cut prices the most. He wrote, “We think the larger players for the most part may continue to lose market share, as price cuts are not enough. Sure, it is not just about better quality, but interesting that the ones gaining share are not price discounters (ankle biters, as called by some) but those with more premium offerings.”
Significant Growth
6 LPs grew their share of flower sales by more than 3pt. The 6 LPs which grew their flower share by more than 3pt from 2Q20 to 2Q22 had an average price per gram of $5.13, 4% below the average price of $5.36. Zuanic’s hypothesis is that market share was gained with higher prices and this doesn’t seem to track, however, the price is only 4% below average. The losers had much bigger price drops.
Minor Growth
18 LPs grew their share of flower sales by between 1-2pt. The 18 LPs which grew their flower share between 1-2pt from 2Q20 to 2Q22 had an average price per gram of $7.78, 45% above the average price of $5.36.
Market Losses
The LP’s with market share losses ranging from 3pts. to 1 pt all had prices that were anywhere from 14% below the average flower price to 41% below average prices.
Organigram Bucks Trend
The big outlier was Organigram (NASDAQ: OGI) which saw its market share for flower, increasing share from 5% in 2Q20 to 12% in 2Q22. Zuanic wrote, “Organigram gained share by reducing their flower price per gram by 48% over the two-year period from $8.82 (5% premium to 2Q20 average price per gram of $8.37) to $4.56 (15% discount to 2Q22 average price per gram of $5.36).”
Other big losers included Aurora (NASDAQ: ACB) whose flower market share plunged from 21% in 2Q20 to 2% in 2Q22. Also losing share was Tilray (NASDAQ: TLRY) whose share decreased from 19% in 2Q20 to 8% in 2Q22.
In Closing
Zuanic believes that Canadian cannabis consumers are maturing and focusing more on quality than they had in the past. Cutting prices doesn’t seem to bring in more sales. It could also be that with more competition, consumers may have a harder time choosing which flower to buy. They could be opting for the higher-priced product in order to assure their money is well-spent.
Julie Aitcheson
