Basket Penetration in the Era of Cannabis 2.0 and COVID-19
April 9, 2020
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This report looks at two metrics that have a lot to tell us about consumer behavior: basket penetration and attachment rate. These metrics measure, respectively, how frequently certain product categories appear in individual purchases and how frequently product categories appear together. Because it uses recent data, it also includes slides specific to Cannabis 2.0, — the easing of regulations in Canada that allowed Edibles, Vapor Pens, and other non-Flower products to enter the market — and COVID-19, the global pandemic that’s sent cannabis consumers racing to top up their stash.
For anyone interested in what consumers are buying, basket penetration is a great way to approach the topic. While sales numbers give an overall picture of where the money is going, basket penetration tells us a lot about what products are popular. It can capture broad shifts in consumer preference, or even holiday specific sales trends, like when Edibles begin appearing in more baskets around the winter holidays. And basket penetration is extra insightful when it comes to major changes in the market, like Cannabis 2.0 in Canada and the COVID-19 crisis in, well, everywhere.
This report examines it all, beginning with basket penetration across categories in the United States, which has had all categories on the market for much longer than Canada. There, we see that Flower is both the most commonly purchased category and the most likely category to appear in single-category baskets. It is clearly still the most common consumption method, and probably the first thing that comes to mind when people think about cannabis. Moving into the other categories, we see some interesting narratives emerge. Edibles are fairly common, being in about one of every five baskets, and have a low rate of single-category baskets, meaning they’re a frequent add-on. Pre-Rolls, however, while less popular overall than Flower, are still relatively high in standalone purchases, which suggests that there is a market for “single serving” products in cannabis.
From there, we look at basket penetration by category in Canada, which gives us an idea of how consumers are reacting to Cannabis 2.0. Given the lower rates across the board when it comes to the newer products — basically anything besides Flower and Pre-Roll — it seems like they’ve been slow to catch on. But again, it’s early days for Cannabis 2.0. Indeed, looking at basket penetration for only Cannabis 2.0 categories, we see a steady upward trendline.
The other big, important, and impossible to ignore event in cannabis is of course COVID-19, which has, as we recently noted, sent consumers to the store for a lot more than toilet paper. Cannabis stores have remained open as an essential service, and quarantined consumers are definitely taking advantage. Given that cannabis is already a welcome enhancement to a night of Netflix and snacks, this makes tons of sense. But what are they pairing with those snacks, exactly? Turns out, the crisis has turned people back to an old favorite: Flower. People also stocked up on Vapor Pens a bit, suggesting some concern about being able to get their favorite cartridges going forward, and Edibles.
Lastly, we look into attachment rates, which gives us a better idea of what products are trip drivers, meaning products that people come to purchase specifically, and what products are add-ons or impulse buys. It also, of course, tells us what people are buying alongside all that Flower. Cannabis 2.0 definitely plays into the numbers here, as we see high Flower attachment rates for Pre-Rolls and Edibles in the U.S., while only Pre-Rolls enjoy a high attachment rate in Canada. Clearly, consumers are not used to Edibles yet. The same is true for Vapor Pens, another major Cannabis 2.0 product.
Overall, the data show some purchasing patterns here that make a lot of sense. While we’re looking at two markets in very different stages of development, not to mention a market caught in the middle of a major global pandemic, certain things just seem to hold true. Like the consumer loyalty to Flower, which has only been strengthened by the pandemic. However, given the gap in Flower basket penetration between Canada, a market that only recently opened itself up to new categories, and the U.S., where Edibles and Vapor Pens have been available for years, the general trend seems to be towards more diverse baskets. Time, as they say, will tell!
We use a few key terms in this report. Baskets can be most easily thought of as individual transactions. Thus, an item or category’s basket penetration is defined as the number of baskets in which it appears. If two out of four baskets contain Flower, for example, the Flower basket penetration would be 50%. Attachment rate is somewhat self-explanatory — how frequently a given product or category appears with another — but it’s important to note that it’s always used in relation to an original category. It’s most useful when looking at which products are added on to purchases in popular categories, and indeed we’ve focused on attachment rates for Flower in this report, looking broadly at categories in each country and also zeroing in on regional attachment rates for Pre-Rolls.
Data for this report comes from real-time sales reporting by participating cannabis retailers via their point-of-sale systems, which are linked up with Headset’s business analytics software. The data included are YTD (Jan 1 - Mar 26), unless otherwise noted. Sales data are cross-referenced with our catalog of over 400,000 products to provide detailed information on market trends.
Headset’s data is very reliable, as it comes digitally direct from our partner retailers. However, the potential does exist for misreporting in the instance of duplicates, incorrectly classified products, inaccurate entry of products into point-of-sale systems, or even simple human error at the point of purchase. For this report, the data are also self-reported by loyalty program participants. Thus, there is a slight margin of error to consider.
Trip Drivers and Trip Passengers
Looking at basket penetration by category in the U.S., it’s clear that Flower is still a favorite at just shy of 50% basket penetration, but not as dominantly as it was in the earlier days of legalization. In addition to being in half of all baskets, it’s quite frequently the only item in those baskets, with 65% of Flower purchases being single-category baskets. This is exactly what we mean when we say something is a trip driver. Pre-Rolls are too. While they appear in far fewer baskets, their single-category basket rate is still very high at around 58%.
As for the passengers, Edibles have decent basket penetration at 20%, but less than 39% of Edibles baskets are single-category. It’s worth noting, per our above observation, that Vapor Pens and Concentrates have lower basket penetration but higher single-category basket percentages. All the other, more esoteric categories are even lower, but Beverages stand out as the most frequently added-on product. Less than 26% of baskets including a Beverage product were single-category.
Looking at the same data for Canada, we see a noticeably different graph. The data here are for Q1, which covers the very first sales of Cannabis 2.0 products in Canada. Here we see that Flower is even more prevalent, with a basket penetration of 61% and over 75% single-category baskets. Pre-Rolls, the other pre-Cannabis 2.0 category here, are similarly boosted, at 35% basket penetration and around 65% single-category baskets. This is to be expected of course, as consumers are quite familiar with these products. There’s also theCOVID-19 crisis which, as we’ll see a bit later on, seems to drive sales of Flower products. Moving into the Cannabis 2.0 categories, there’s really not much to write home about. Edibles and Concentrates are the only categories with really any basket penetration, at 8% and 7% respectively. Edibles do still appear in fewer single-category baskets though, suggesting that their add-on status persists regardless of market share. Concentrates go against the grain, being an inhalable product that has the lowest single-category basket percentage in Canada, but it may be too early to tell whether they’ll catch on up north.
Cannabis 2.0 is On Its Way
While the graph below might paint a dismal picture for Cannabis 2.0’s big launch in Canada, we cannot stress enough that this is early days. Isolating only the categories included in Cannabis 2.0 (everything besides Flower and Pre-Rolls), we see that basket penetration has grown quite steadily this quarter. While their aggregated basket penetration was below 1%on New Year’s Day, it had jumped to 5% by 3/23.
This upward trend suggests that supply rather than demand is the issue here. As supply chains continue to be built and streamlined for these categories, and consumers get more used to seeing them, we expect this number to grow. If Canada mirrors the U.S. cannabis industry, the aggregated basket penetration for these categories should hit 10% before plateauing.
The COVID-19 Crisis Hits Cannabis
This graph shows category basket penetration for U.S. markets before and after the COVID-19 crisis. Pre-crisis is considered January, February, and the first few days of March. Post-crisis is all data from 3/7 - 3/29. While the basket penetration breakdown isn’t as dramatically changed as, say, topline sales, it’s definitely shifted. First off, we can see that Flower is in more baskets, going from 48.6% to 51.4%. Pre-Rolls are down a bit, interestingly, which may be due to the fact that people are wary to pass a joint around, given the risk of transmitting the virus. It could also be that people are more interested in stocking up than single-use. Vapor Pens, Edibles, and Concentrates have also seen a bump, which makes sense given that sales have gone up significantly overall. Edibles actually saw the most increase in basket penetration of the three, which is perhaps not that surprising, given that quarantine involves plenty of snacking.
Pre-Rolls are far and away the most commonly bought item with Flower in both the U.S. and Canada. While this makes sense in Canada, as they were the only other Category available until recently, the U.S. has a slightly higher attachment rate regardless. That said, the attachment rate to Flower for things like Edibles, Concentrates, and Vapor Pens insignificantly higher in the U.S., where those products have ben available for several years, than in Canada.
Given that these data are the very first quarter of Cannabis 2.0, it’s worth noting that Edibles and Vapor Pens have already started to make their way into baskets with Flower, with4.2% and 2.8% attachment rates in Canada, respectively. All the other new categories have very low attachment rates, but it is notable that Oil segment seems to be a companion buying Canada, and that Capsules are a more frequent add-on up north.
While Pre-Rolls are the most frequent companion purchase to Flower, there is some variability across markets. In the U.S., Washington has the highest attachment rate for Pre-Rolls at 17%, followed by California and Nevada at 16%. Colorado and Oregon have lower attachment rates. In Canada, Alberta has the same high attachment rate as Washington, but the other provinces are more consistent purchasers of Pre-Rolls also. British Columbia and Ontario both sit around 14%, suggesting that Canada is still slightly more comfortable with Pre Rolls. This could change as Cannabis 2.0 comes into full swing, of course, although U.S. states haven’t necessarily abandoned Pre-Rolls for more esoteric products.
• Flower will lose some basket penetration in Canada as consumers branch out to newly available Cannabis 2.0 products. Basket penetration for non-Flower categories should rise in Canada for several years before plateauing
• Edibles are currently and will likely remain more of a companion product, appealing to people who came in for Flower or another trip driver.• Inhalable products with continue as trip drivers, being something like the “meat and bread” of cannabis
• Lingering fears about respiratory issues from COVID-19 may result in an increased interest in Vapor Pens, or even Edibles/Beverages
• The Flower basket penetration bump from COVID-19 will likely wane after the initial stages of the crisis as consumers ease up on stockpiling. Pre-Rolls, however, may be suppressed until whenever people feel safe shaking hands again, let alone sharing a joint.• Flower attachment rates for Cannabis 2.0 products will rise steadily, predicting higher basket penetration rates to follow.
• Pre-Roll attachment rates will probably stay similar for both the U.S. and Canada, as there isn’t much rhyme or reason to the variance in rates. But while preferences vary by regional market, average attachment rate to Flower is around 15% for each country
While Flower remains a very significant portion of the market, this report shows that consumers tend to shift away from it as new options enter the market. To wit, the U.S. has had the most category options for the longest, while Canada just got access to them. In the U.S. Flower’s basket penetration is 11% lower. Flower, being the most familiar consumption method for cannabis, will likely be the industry’s main trip for the foreseeable future. But the U.S. has been around long enough to show us what an industry with more product diversity looks like. Canada will, barring any other regulatory changes, likely follow the same pattern. Given that sales have climbed steadily for Cannabis 2.0 products in their first quarter of availability, it seems like it already is.
Looking beyond Flower, inhaled products definitely have the potential to be trip drivers, even Pre-Rolls. While they appear alongside Flower quite frequently, they have plenty of single-category baskets. However, it’s especially easy to see, given the pandemic we’re wrestling with right now, how the future of cannabis could be in non-combustible products, like Vapor Pens or Edibles. That’s not true yet though, as the crisis mainly seems to be to bolster Flower sales, which makes sense given how much stockpiling is going on across industries. While no one is passing any Pre-Rolls, plenty of other categories are enjoying a boost as well, especially Edibles. As for attachment rates, the main story here is the same as above: Cannabis 2.0 categories are lower across the board in Canada. That’s not exactly a surprise, given their newness. Probably, as consumers grow to know and love Cannabis 2.0 products, that will show up in attachment rates first. This may be obvious, but people who go in for Flower are the target audience for non-Flower products.
Indeed, product diversity is inevitable for the cannabis industry, as the U.S. has shown. Certainly, legalization has seen new and different strains of Flower proliferate, but that hasn’t blunted consumer interest in things like Vapor Pens, Edibles, and Concentrates. And while the other categories have relatively insignificant basket penetration now, there’s always potential for them to become add-ons. The main takeaway here is that nontraditional cannabis products catch on, and relatively quickly. The U.S. only has a four year head start on Canada, after all.