Craft cannabis could ‘explode’ in Canada

A report finds consumers are willing to pay a premium, but determining fair value remains a big consumer pain point.

cannabis-products

According to new research, low price is still one of the primary drivers of consumer choice in the cannabis market. But there are signs that premium products could soon take off in Canada.

The report from Deloitte Canada, cannabis market research firm BDSA and digital retail and analytics platform Hifyre, reveals that 86% of Gen Z and young millennials are willing to buy premium products.

Discerning consumers will pay a premium for superior products and/or benefits, according to the report, which predicts a premium craft segment “explosion” in Canada.

But the key to converting consideration of premium products to sales is going to depend heavily on whether a brand can educate consumers as to why the higher price is worth it, the report states. And even though educating consumers has been a cornerstone of cannabis marketing since legalization, brands will have to take a bit more of a cue from other categories: the report compared it to the consumer journey in alcohol space, like how consumers move from mass-market beer to craft brews, or from entry level blended whiskeys to premium scotch.

And that may be easier said than done. On the surface, the cannabis market largely operates like traditional CPG in terms of demand curves and willingness to pay a premium for higher quality products. But determining fair value remains confusing for consumers.

For example, iCanada, craft dried flower commands a price premium ranging anywhere from 16% to 41% compared to other strains, depending on its THC level, and there is also no national pricing, with large ranges for the same SKU across provinces (see, below).

Fire - Flower Holdings Corp--BDSA-1

According to the report, the legal cannabis market totalled $2.6 billion in sales in Canada in 2020, with predicated CAGR of 10.6% by 2026. The adult use market represents the greatest opportunity for growth by 2026: 97% of volume sales growth in Canada, compared with 76% in the U.S.

In the North America market, fewer Canadians, compared with Americans, place a value on taste or THC content: 32% vs. 37% and 31% vs. 33%, respectively. And compared with the U.S., Canadians also place a higher value on price, with 34% of Canadians vs 27% of Americans, reporting that low price is a leading influencer of product choice. In Canada, 70% of respondents who shop the illicit market stated that better or lower pricing was a key reason they turned to that market.

Weak brand loyalty, meanwhile, continues to dog the market. For example, in Canada, the top five vape brands in 2021 were not the same ones from when the country began adult use sales two years ago.

Consumers are more likely to choose a product that is either a brand they have used before (25%); would opt for a brand that has been recommended by a friend or family member (20%); or opt for a brand recommended by a “budtender” or “cannista” (21%). Over time, the report says that strong branding will eventually create the differentiator that should command a higher price.