- Average recreational pot price roughly $3/gram lower than medical for LPs
- Edibles expected to improve LP profit margins when legalized
- Average prices expected to keep declining as recreational volumes rise
Medical marijuana sales growth is expected to slow despite the higher pricing premium they fetch for Canadian cannabis producers, due to the migration of medical users to the more convenient recreational market, according to a forecast by AltaCorp Capital Inc.
A shift toward high-margin products like edibles later this year when they are expected to be legalized, however, will insulate licensed producers (LPs) from retail price compressions, it said.
“The variance in average selling price between recreational and medical is meaningful, with premiums on a per-gram basis for medical cannabis product ranging from 22 per cent to more than 100 per cent,” AltaCorp said in a report, adding the volumes for medical marijuana is likely to account for a reduced value of overall sales.
The average price for most of the reporting recreational cannabis companies hovered in the mid-$5 range per gram, AltaCorp said.
This compares with an average of $8.25 per gram for medical, based on the data below.
In the first months of legalized recreational pot, LPs quickly saw the average price of the dried flower per-gram equivalent fall, as seen in reports of four of the biggest Canadian cannabis growers that have reported quarterly results with recreational sales. While this drop was expected, due to the new tax that was added to medical products for the first time in October, average recreational prices were also lower than medical due to wholesale pricing, which is regulated by provincial governments in most regions and also include margins for distributors and retailers.
Medical sales are often made directly to the consumer, which allows LPs to capture greater margins.
“Average prices across all producers should continue to decline in the coming quarters as recreational volumes make up a greater portion of overall volumes,” it said, adding a shift to higher-margin cannabis derivatives is expected when edibles and beverages are expected to be legalized later this year.
“A shift in focus towards these categories will allow companies to realize higher margins on premium priced products, which will help to insulate them from the effects of commoditization and compression due to retail and distributor margins,” AltaCorp said.