The cannabis industry and its customers have endured and evolved throughout the COVID-19 pandemic, bringing rise to curbside pick-up and a shift towards non-inhalables. The crisis has led to unexpected deviations in insightful and normally predictable trends, such as preferred shopping times, across the entire legal cannabis market.
Considering Oregon has experienced some of the more interesting shifts, and in light of our upcoming launch of Headset’s Oregon Insights Premium, we were curious to explore the underlying influences and most recent trends taking place in this distinctive market.
Oregon’s recreational cannabis market has exploded since it was legalized in the second half of 2015, with Q2 2020 sales growing 50.7% year-over-year (YoY), the steepest increase out of all West coast markets. Oregon’s total recreational sales increased 49.8% between January and July of this year, rapidly outpacing the growth of its neighboring states, California and Washington.
Given that Flower holds Oregon’s largest market share in terms of product category, we decided to take a detailed look at current Flower pricing trends over the last 3 to 18 months to analyze the impacts of COVID-19.
We primarily examined three critical pricing metrics that help us better understand pricing trends within a market and evaluate the cause of various shifts: Average Item Price (AIP), Average Unit Cost (AUC) and Average Equalized Price (EQ Price). We collected and analyzed the data using our newly updated Insights Premium Pricing Dashboards to discern the nuances of price, wholesale cost and margin through a variety of different perspectives.
The above chart compares the three primary pricing metrics from the previous 90 days to the same time frame in 2019. The increase across all three measurements tells us that Flower in Oregon is more expensive today than it was a year ago. The AIP, which represents the pre-tax price a customer pays for a single product, is 19% higher today than it was at the same time last year. A quick analysis may conclude that this increase is simply due to higher pricing; however, since our data includes all Flower sales, it could also represent a consumer shift towards larger package sizes, such as a 3.5-gram to a 5-gram container of Flower.
Average Unit Cost (AUC) calculates the average cost per item by dividing the total cost of goods purchased by the number of items purchased. The graph shows AUC increased 38% from last year, double the growth of AIP. Since the total cost of products purchased, and therefore AUC, is directly influenced by the price of each product, we can conclude that AUC increased in part because AIP did. However, there’s still uncertainty surrounding the exact reasoning for a rise in AUC since it could be related to either higher pricing or a consumer shift to larger packages. In order to perform a clear analysis, more background is needed on the individual cost and package sizes of each item purchased.
Finally, the increase in Average Equalized (EQ) Price, or the average price per gram across all Flower products, confirms our suspicion that Flower in Oregon is indeed relatively more expensive now than it was last summer. This data allows us to confidently say that the increases in AIP and AUC were at least partially due to an increase in price.
By expanding our timeline to view monthly AIP and EQ Price over the last year and a half, we’re better able to visualize and examine pricing trends. AIP increased in what appears to be a stair-step pattern, with a significant rise between May and August 2019 and a major peak in April 2020. This apex occurred during the peak of the pandemic amid stay-in-place orders, which we believe encouraged customers to shift their shopping habits towards larger purchases less frequently in an effort to delay restocking and avoid public exposure for as long as possible. As the panic-buying subsided in the following two months, AIP dropped, eventually settling into a “new normal” by June. It continues to hold steady in the low $20’s. We’ll continue to follow these numbers in the coming months to ascertain if this is a temporary or long-term trend.
Although the EQ Price also stepped up between May and August 2019, it failed to replicate AIP’s spike in April 2020. This discrepancy between the average price per gram of Flower and AIP in April 2020 indicates that the best explanation for AIP’s surge is a consumer shift towards larger purchases since EQ Pice remained barely unchanged. We will have to keep an eye on EQ Price considering its upward momentum.
This graph displays the number of units sold over the previous 90 days across the three best-selling Flower package sizes, broken out by Price Band. The “Bulk” size allows customers to choose the exact quantity of Flower they want at the time of purchase, and is one of the unique aspects of Oregon’s cannabis market that differentiates it from other states. Bulk clearly stands out as the dominant option in this category, demonstrating that customers preferred to have control over the precise amount of Flower they purchased.
Looking closer at the price ranges within the Bulk transactions we see that a majority are greater than $20, indicating that when consumers buy Flower in bulk, they elect to purchase at least a few grams at once. The most frequent Price Band in the Bulk category was $30-$40 with over 900,000 units sold in the last 90 days, which points to consumer’s initial fear of a shortage and the panic-buying that ensued.
This bubble chart presents a lot of information on the trends taking place in Bulk Flower purchasing. Each bubble represents a different Price Band labeled on the vertical axis. The size of the bubble symbolizes the total sales of Bulk Flower products sold within that Price Bucket in the past 90 days, and the location of the bubble along the horizontal axis represents the YoY growth in sales for its corresponding price bucket.
Once again, we see that the $30-$40 price bucket is driving the highest sales volume within the Bulk Flower category, boasting over $30M in sales in the previous 90 days. We also see the sales volume within this Price Band increased nearly 200% from the same time last year, while the YoY growth of many smaller pricing bands were nearly flat or negative. This data, combined with the fact that the following three more expensive pricing buckets ($40-$50, $50-$60 and $60-$80) all experienced even stronger YoY growth, indicates that customers purchasing Bulk Flower are more likely to make bigger single purchases now compared to a year ago.
With this data, we are able to confirm that the COVID-19 pandemic influenced Flower prices and consumer shopping behavior in Oregon. We see a minor bump in Flower prices and a growing affinity for Bulk packaging, with consumers making larger purchases less frequently than in the previous few months. However, we are still left with some uncertainty as to which factor had a stronger influence on AIP’s and AUC mutual increase.
Since the vast majority of Oregon flower sales are within the “Bulk” size, it can be extremely valuable to evaluate this slice of the market by pricing bucket to understand exactly how much customers are purchasing in a single transaction. Time will tell if the pandemic will have a lasting or fleeting impact on Flower prices in Oregon. In the meantime, learn more about the Oregon cannabis market with Oregon Insights Premium.