MJBizMag August 2020 - 49

COST & PRICING
Although beating the illicit market on price
alone is nearly impossible, that doesn't mean you
should neglect cost-cutting and pricing strategies.
" In terms of pricing, you just have to remain
competitive. You can't allow too much of a gap
between the illicit and legal market, or you're just
going to lose too many customers, " said Pitts of
Ganja Goddess.
Lopez said TGS prices its products in " the
middle " of the market but also has " tier pricing. "
" We go from our highest-quality, top-of-line
stuff-that's one price point-all the way to the
lowest price point, where we cut back a little bit
on the packaging as well as marketing on some
products, " he noted.
" We have something for everyone. I just don't
think you can ever compete with the black market
because you never know what the supply's going
to be, you never know what prices are going to be
on the street, " Lopez said. " We just focus on what
our (licensed) competitors are doing and compete
against them. "
Krane of 4Front Ventures doesn't think battling
the illicit market on price is so fruitless. " The best
thing you can do is build economies of scale that
allow you to compete, " he said.
One way to exploit economies of scale is
through automation. For example, 4Front recently
purchased a seven-figure edibles-manufacturing
machine from Europe that Krane said can
produce an array of hard and soft candies in
large volume. The company plans to deploy the
hardware in Southern California.
" We're going to be building in a level of
automation in the production of infused
products-particularly edibles products-and doing
them in a way that is so hyperefficient, with so
much automation that we think we'll be able to get
the price point down to a place where it'll be able
to compete with illicit-market pricing, at least on
the edibles side of things, " Krane said.
While such an investment can pay off in a
large market such as California, Krane warned
it wouldn't be worth the capital outlay in smaller
state markets, say those with fewer than
10 million potential cannabis consumers.
Conversely, it might be nearly impossible to
compete with the illicit market on flower prices in
California, but Krane believes it's more plausible
in markets in the Midwest and East Coast, where
illicit cannabis isn't as cheap as that found in
western states-not to mention some western
markets such as Washington state, where 4Front
has cultivation and manufacturing operations.
" A lot of companies have died in the last year
in Washington because their cost of production
is more expensive than the wholesale price for
flower, " Krane said. " We've figured out how to get
yields that are well above the industry average,
and that's allowed us to not only stay afloat
but really thrive in what's arguably the most
competitive market in the country. "
Another way to leverage economies of scale is
by bulk buying, although Krane noted that's not
always possible.
" In some markets like Oregon, where there is
so much supply, you can buy bulk cheaper by
negotiating long-term, guaranteed contracts, "
Krane said, adding that states such as Illinois
and Massachusetts don't have the supply to
accommodate bulk purchases.
" They'll catch up to a degree, but they may
never really get to the point where Oregon or
Washington are now. "
August 2020 | mjbizdaily.com 47
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MJBizMag August 2020

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