The recent rise in inflation has been causing concern among economists and consumers alike. Some of us might be able to see the impacts of inflation at the grocery store, where our dollar buys us less over time, but what about in the cannabis space? Let's take a look at the data and see if inflation is impacting the cannabis industry.
According to Investopedia, inflation is: "the decline of purchasing power of a given currency over time." In other words, inflation is the reason that a dollar buys you less and less over time, or the reason that a gallon of milk cost $2.48 in 1995, but costs $3.64 today (that's a 47% increase for those keeping score at home).
The simplest way to begin evaluating inflation in any industry is to look at the average prices over time. Let's begin by looking at the average item price of all cannabis products in adult-use markets in the US over the previous year.
In this graph we can see that within most markets, prices have been fairly stable over the previous 12 months. Michigan stands out as a notable exception with a steadily declining average item price, falling from $25.38 in July 2020 to $19.31 in June 2021. Michigan began adult-use sales less than two years ago, and this price decline pattern is common in new markets. This is because demand outpaces supply in the early years after legalization. As supply is better able to meet demand, prices tend to fall until the market stabilizes. This pattern generally takes 2-3 years.
Nevada, a market heavily fueled by tourism has seen some pricing volatility during the COVID-19 pandemic. Prices in Oregon made a noticeable increase right at the beginning of this year, but remained stable since then.
This next graph shows the relative change in average item price from July 2020 to June 2021 by market. Unsurprisingly from what we saw on the previous graph, Michigan stands out with a large decrease in pricing. The only market that saw a rise in average prices over the previous 12 months was Oregon with a 2% increase. This data does not indicate that inflation has been driving up retail prices in the cannabis industry, but looking at average item prices is also not an ideal method for evaluating the influence of inflation on the cannabis industry. This is because average item price is heavily influenced by what consumers are purchasing and the products available in the market.
For example, the average prices of individual Edible products could be decreasing in a given market over time, but if many consumers then switch from purchasing single serve 10mg Edibles that are usually $5 to 100mg Edibles that are usually $20, the average item price of the Edible category at large will rise. The same is true for an entire market. Even if individual products are decreasing in price, if consumer purchasing patterns shift enough, that price decrease could be distorted or completely hidden.
Therefore, the best way to evaluate inflation is to track the prices of individual products over time. Luckily we are able to do this at Headset thanks to our industry-leading real-time SKU-level retail data.
The graph above shows the median month over month change in price for all individual cannabis products from all of our connected retailers within a given market over time. In other words, we were able to track the monthly average price of Amazing Greenhouse's Blue Dream (3.5g) at one store, then compare those monthly changes to all other products at all other retailers, and take the monthly median by market.
If inflation was heavily impacting the cannabis industry, we would expect that the prices of individual products would increase over time. We do not see that happening in the graph above. Most of the time, in most markets, the prices of products have either held stable or decreased, as demonstrated by the large quantity of points beneath the 0% line in this graph.
You might have heard this term floating around in the CPG space lately. While it may be easy for a manufacturer of cereal or chocolate bars to decrease the package size and charge the same price, this practice is more difficult, if not impossible, in cannabis. Major categories like Flower, Vapor Pens, and Edibles are generally sold by weight or THC content (eighths, grams, 100mg packs etc.) and reductions in package size are more noticeable to consumers and therefore difficult to market.
While inflation has not been negatively impacting consumers in the cannabis industry, things may change. And since the cannabis industry has the tendency to move quickly, we will continue to monitor the space and keep track of pricing and inflation. You can also track cannabis market and pricing fluctuations in real-time with an Insights Premium subscription. Request a demo to learn more.