MJBizMag July 2021 - 75

our prices shifting all the time, and it
was a quarter! "
Considering Illicit-Market
Dynamics, Supply and Demand
When comparing your store's prices
to your competitors', don't forget that
your competition goes beyond other
licensed, regulated establishments.
The illicit market also counts,
advised Kris Krane, president at
Phoenix-based 4Front Ventures and
its Mission Dispensary retail stores in
Illinois, Massachusetts and Michigan.
" You're trying to pull in
customers-whatever customers
you can get-and the whole name of
the game in these early, adult-use
markets is getting people to convert
from the illicit market to the legal
market, " he said.
The price dynamics of unregulated
cannabis vary widely across the United
States, Krane added.
" If you're trying to set pricing strategy
in a lot of the East Coast, or even in
Midwest markets, (illicit-market pricing
is) going to be a bit less of a factor, in
part because the illicit-market pricing
in the eastern part of the country tends
to be a lot higher. "
Cannabis pricing strategy might also
need to change as a given legal market
matures over time. In jurisdictions with
limited cannabis business licenses,
Krane said, producers and retailers
have more room to keep prices high as
the regulated market launches, when
legal production is outweighed
by demand.
" But as production ramps up, as
more licenses are granted, as more
stores come online, then that pricing
will start coming down and you'll start
capturing the rest of that market, "
he said.
In Massachusetts, Krane said
that efficient, vertically integrated
production has allowed 4Front to
reduce its retail prices.
" Right now, we routinely have
$30 and $35 eighths on the shelves
in Massachusetts, where most of our
competitors are still selling
$50 eighths, " he said.
Even retailers who can't control
Liz
Connors
the costs of their own production
via vertical integration can pursue
favorable contracts with third-party
producers, Krane said. That could
include exclusive relationships with
producers to bring in high-margin
products or forming a " symbiotic
relationship " with a new cultivator
who agrees to offer favorable prices
in exchange for guaranteed bulk
sales while they ramp up their
business.
" That way, they don't have to go
out and do all the work of finding
wholesale buyers right when they first
open, and you can then get product
(for less) that you can sell a little
cheaper on the shelves, " Krane said.
Tiered Pricing Gives
Options to Consumers
Modern consumers expect a range
of pricing options. In many consumer
packaged goods categories,
tiered pricing takes the form of
good-better-best.
" By companies offering a 'good,' a
'better' and a 'best' product, it means
that they can appeal to all types of
customers looking for all types of
products, " said Liz Connors, director of
analytics with Seattle-based cannabis
data-analytics firm Headset, who has
researched the use of good-better-best
price models by marijuana retailers.
" It allows us to extract that value
from the consumer, " she said. " You pay
for the thing that's worthwhile to you. "
The good-better-best pricing model
isn't necessarily limited to three
tiers. In a December 2020 report,
Connors found evidence of a five-tier
price hierarchy among 3.5-gram
cannabis flower offerings in Canada's
competitive Alberta retail market.
The report categorized these tiers as
ultra-value, value, core, premium and
ultra-premium.
Going above five pricing tiers may be
counterproductive, warned Connors. " I
think five is common; seven is relatively
uncommon, " she said.
" When we start to get that many
tiers, we start to run into a paradox
of choice on one end, " she said. " We
have too many things to choose from,
and we have trouble deciding when
we're given too many choices. "
Regardless of the exact number
of price tiers a store offers, Connors
highlighted the importance of offering
customers a range of prices as a market
matures. " When a market's very young,
there's so much demand and so little
supply that it doesn't matter what you're
offering, everybody's going to buy it, "
she said. " But when you start to get
to a point where things are becoming
saturated, that's where you need to
have a way to stand out to attract the
right consumers. "
Tiered pricing can also help offset
declining prices as a market gets more
competitive and price competition gets
more intense.
" Adding a premium or a core product
means that you don't have to compete
in that price war, " Connors said.
" Usually, the only person that wins in
a price war is the consumer. It's never
the business. "
Solomon Israel is a
reporter for MJBizDaily
and MJBizMagazine.
You can reach him
at solomon.israel@
mjbizdaily.com.
July 2021 | mjbizdaily.com 75
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MJBizMag July 2021

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