Companies weighing pricing strategies

Many waiting to see how deep OCS will cut margins

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 cannabis 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.

However, two industry sources told The Canadian Press the average markup will decline to 25 per cent from 28 per cent, though the amount will vary across product categories.

The biggest margin reductions will come in the vapes, edibles and beverage categories with more modest decreases to flower, prerolls and concentrates.

The Canadian Press is not identifying the sources because they were not authorized to disclose the information.

By the OCS’s count, the illicit market made up 43 per cent of Ontario’s cannabis market last March.