What's Going On With Cannabis Pricing In Illinois? Analyst Examines Retailers' Menus

Illinois is one of the most prominent cannabis markets in the U.S. In 2022, recreational marijuana sales crossed the $1 billion mark. In fact, since cannabis was legalized in 2020, retail shops have sold more than $3 billion in cannabis. However, in August, sales dropped and in September, sales grew only 1.0% sequentially.

YoY growth (7.4%), was higher than the 6.2% rate in August. According to the Illinois Department of Public Health (IDPH) “September continued the trend of consistent monthly 2022 medical cannabis sales between $27 million to $31 million. September medical sales totals again landed on the lower end at $28,055,726.06 and were the lowest monthly totals in 2022,” reported local media.

In the current context of market contraction, inflation, and economic crises, sales respond in part to price levels. 

Retailers’ Spreads: Among The Highest In The US

To understand more about the economics of Illinois' cannabis market, Cantor Fitzgerald's Pablo Zuanic offered a comparative pricing analysis, following a survey of 55 stores and their flower SKUs. The analyst explained that retail prices in Illinois are also affected by market contraction across the U.S.

“IL retail prices (flower) are down 15% YTD; the decline is somewhat similar to the 13% YTD drop we calculate for PA and the 12% drop for FL,” Zuanic said. He noted that Illinois' flower prices (3.5g pack sizes) at $15.69/g are 16% higher than Pennsylvania's ($13.55) and 43% higher than Florida's ($10.99).

“We also estimate that retailers' spreads are among the highest in the country (but down 20% YTD),” said Zuanic. “Although IL prices vary across operators, the disparities are not as wide as we saw in PA and FL, with only Curaleaf 18% below the state average in the state [1% below in PA].”

'Down 20% YTD'

An average retailer's gross margin in IL for flowers is 48.6% or $7.62 per gram. “If we convert retail prices to a $/lb, we note retail flower prices of $7,029 ($15.69/gram) compared with wholesale prices of $3,616 ($8.07/gram). Not bad compared with most other states: MA $4.62 ($9.71-5.09); MI $1.84. (...) We calculate that retailer spreads in IL at the start of the year were $9.52 per gram ($18.41-8.58). So, retailer gross profit per gram (not factoring in vertical integration) in IL is down 20% YTD,” Zuanic explained.

How Big Is The Price Disparity In Illinois?

According to Zuanic, the price disparity range goes from -18% to +6% whereas in Florida, it ranges from -43% to +23%. In PA from -19% to +13%.

Relatively speaking, supply seems to be tighter in Illinois than in Pennsylvania.

“Despite IL being rec, total flower average SKU counts per store are below PA levels (132 vs. 178), in IL SKU counts across operators vary a lot more than in PA. In Illinois Cresco CRBLF stocks 82% more flower SKUs than the state average per store, while Curaleaf CURLFCURA is 58% below and PharmaCann is 30% below. Think of this note as ‘food for thought,’” Zuanic said.

“We believe the higher % of pack sizes above 3.5g in IL (42% vs. PA at 30% and FL at 22%) is reflective of the increasingly competitive dynamics in the market, but also reflective of IL being a rec and med market. At the same time, PA/FL are both only meds. Another indication of PA being more competitive than IL is reflected in the # of flower SKUs per store (178 vs. 132); we believe the low SKU counts in FL are a reflection of capacity vs. a large number of stores, and FL's vertical integrated system.” 

Range in SKU counts between operators: An important difference is that in IL, SKU counts vary a lot across operators compared with Pennsylvania. “In IL, regarding total flower SKUs, one company (Cresco) had 239 SKUs or 82% above the market average, while Curaleaf only had 55 (58% below the average); in PA, the high was “only” 46% above (Green Thumb) and the low was only 28% below (Jushi).”

Moreover, four companies had more than 170 flower SKUs per store on average in IL. Including Cresco (239), Jushi (187) JUSHF, Verano (179), and Green Thumb (176) GTBIF.

“42% of flower SKUs were above the 3.5g pack size, but four companies were well-above that average (a sign of a more promotional stance?): MariMed 60%, Parallel 53%, Curaleaf 51%, and Ascend 48% AAWH AAWH.”

What Are Price Differences Across Operators?

Unlike other markets, Zuanic found prices across operators to be similar, with Curaleaf being the exception.

“Of the 11 operators reviewed (55 stores in total), average prices for 10 were -5% to +6% vs. the average (Curaleaf was 18% below the average),” Zuanic said and explained prices in Florida and Pennsylvania prices were anywhere from -19% to +13% above the average.

In Illinois, those above the average include: MariMed (Thrive brand) +6%; PharmaCann (Virilife) +5%; Jushi (Beyond/Hello) +4%; NuEra +4%; and Cresco (Sunnyside) +2%.

Ascend -1%; Verano -2%; Green Thumb (Rise) -3%; Columbia Care (Cannabist) -4%; private MSO Parallel (Windy City Cannabis) -5%; and Curaleaf -18%, were below the average.

Illinois wholesale prices: According to Zuanic, companies “have alluded to softness in wholesale prices in several states,’ including states like Illinois and Pennsylvania or “erstwhile licensed-restricted states (MA/MI).” However, Zuanic said there are still significant differences.

Wholesale prices as of 9/30 were $3,616 per pound, and are down only 7% YoY, while MA is at $2,301/lb, down 35% YoY, and MI is down 55% YoY to $933/lb AZ CA -48%, CO -33%, OK -33%, OR -44%, and WA -21%), according to Cannabis Benchmarks (CB).

“States with wholesale prices below $1,000/lb include AZ, CA, CO, MI, OR, and WA. CB does not track wholesale prices for states like PA, MD, or NJ. All this said, with retail prices falling more than wholesale prices in IL, retailers' gross profits per gram have dropped,” he said.

Stock picking?

“With MSOs trading near historical lows, we prefer to opt for quality names (more substantial balance sheets; less execution risk; depth in attractive states; and a track record of providing realistic guidance) vs. the necessarily cheaper EBITDA multiples in the group. Think of this report as 'Food For Thought,'” Zuanic concluded.

Imagen de Nattanan Kanchanaprat en Pixabay.