Largest Canadian Cannabis Companies Spinning Off 'Value Brands' To Combat Illicit Markets With Cheap Weed

By The Fresh Toast's Brendan Bures, provided exclusively to Benzinga Cannabis.

Canadians want cheap weed and retailers have finally figured out they should be the ones giving it to them.

Legalizing marijuana is only half the battle in weeding out black market dealers. In California, there are three illegal sellers for every one regulated dispensary. Add to that the fact that California gram prices rank near the top of legal recreational markets — plus the state has some of the highest taxes on weed — and you understand why consumers flock to the black market, which claims up to 80% of all California marijuana sales.

Canada recently announced a creative solution to battle its own black market problem — selling cheaper weed.

According to latest data from Statistics Canada, legal marijuana increased by 107% in the country, but 70% of all cannabis sales go to illegal sources. In its first year of legal marijuana, Canadian retail sales totaled just over $1 billion. An impressive number, but the marijuana black market totaled between $5 to $7 billion during that same time period.

Big marijuana players, like Tilray and Aurora Cannabis, bet early on that what Canadian consumers wanted was high-grade, top-of-the-line product. But they bet wrong, as quality goods beget lofty prices. Statistics Canada reported that in Q4 of last year, legal marijuana averaged CA$10.30 ($7.83) per gram while consumers could find an average of CA$5.73 ($4.36) per gram on the black market. That resulted in a difference of CA$4.57 ($3.47), representing the second-widest margin between the two since Canada’s marijuana laws took hold in late 2018.

Photo by Yarygin/Getty Images

In response, Canada’s biggest marijuana players have pivoted to creating spin-off “value brands” of its marijuana goods. Canopy Growth, for example, will release a one-ounce product called “Twd. 28” (an ounce contains 28 grams) where consumers should expect to pay an average price of $4.00 per gram, with THC counts between 13-25%.

“All of this is designed to draw consumers from the illicit market and into legal channels,”  Adam Greenblatt, Canopy’s business development lead, told CNBC. “It’s there to provide more variety and more of a value offering to ideally mature the market. Low-cost cannabis attracts bulk purchasers, people on the illicit side who would buy their cannabis by the ounce. People who buy cannabis by the ounce have been toughest to convert.”

Aurora announced in a company conference call last month the demand for cheap weed was jumping higher and higher. The market share for cheap weed—qualified as less than CA$9, or $6.79 USD—had risen from 2% last summer to about 17% now. Aurora will soon release its “Daily Special” value brand, sold in three size topping out at 15 grams. Meanwhile, Tilray will introduce “The Batch,” which will alos be sold in three sizes, with a maximum of 7 grams.

“The Batch is a new no-frills cannabis brand focused on delivering quality cannabis flower and pre-rolls at competitive prices,” Tilray’s Chief Marketing Officer Adine Fabiani-Carter told CNBC. “We expect our new product format and offerings to increase revenue and profitability over the long term.”

The market has spoken and what it wants is cheap marijuana. Canadian retailers have finally figured out they should be the ones giving it to them.

Photo by RichVintage/Getty Images