Redefining Growth: Innovative Strategies for Cannabis Brands in a Price-Compressed Market

Discover how cannabis brands can turn market challenges into growth opportunities with strategic insights and data-driven approaches.

With the pandemic sales boom in the rearview mirror, the cannabis industry has been dealing with a challenging new reality. Gone are the days of renewed optimism and skyrocketing sales—as businesses are once again facing industry-wide pressures in an increasingly competitive cannabis landscape. 

Such shifts have brought about a profound realization: Success in the cannabis industry has never been straightforward. The challenges are real and widespread, impacting brands across all regions, but there’s an untapped reservoir of opportunity in this tumultuous environment. BDSA’s insights pierce through the uncertainty, offering not only a reflection of the current market, but a vision of what could be. 

Enduring the trials of price compression means embracing resilience, innovating strategically, and uncovering growth paths previously unseen. With a keen understanding of emerging trends, BDSA provides the guidance brands need to navigate these turbulent waters and emerge stronger, poised for a promising future.

As we delve deeper into the specifics of the cannabis market’s evolution, a key element emerges as both a challenge and a catalyst for change: price compression. This phenomenon, while a natural progression in a maturing market, has significantly reshaped the landscape, requiring a deeper examination of its impact and implications.

Unrolling Price Compression in the Cannabis Industry

Price compression was always an inevitability in the cannabis industry. Vaulted into the mainstream by changing laws and a progressive public perception, cannabis competition increased dramatically—as did technological advancement, market saturation, and numerous shifts in consumer demand. 

With cannabis, price compression amounts to much more than industry jargon. This phenomenon has altered the path of consumer-targeted cannabis products, especially in established markets like California and Michigan. As the industry matured with rapid expansion and evolving consumer preferences in those and other regions, average retail prices have seen a notable decrease of -30 percent from Q3 2021 to Q3 2023. 

This dip, even more pronounced in seasoned markets, challenges brands to adapt and innovate. However, BDSA’s data reveals emerging trends that identify opportunities for growth amidst price compression, offering strategies beyond mere price competition.

A Tale of Three Regions: Narrating the Price Compression Saga

In the unfolding narrative of the cannabis market, three key regions—California, Massachusetts, and Michigan—each tell a compelling story of adaptation and resilience amidst price compression.

Massachusetts: The Price Plunge and Its Ripple Effects

In Massachusetts, the cannabis market has faced its share of challenges with significant price compression. The overall market saw a dramatic -14 percent plunge in prices from Q3 2022 to Q3 2023, reflecting the intense competition and evolving market dynamics. Despite these challenges, certain product categories showed varied impacts of this downturn. Sublinguals, pre-rolls, and shake/trim categories collectively experienced around a -10 percent decline, signaling a shift in consumer buying behavior and necessitating strategic adjustments in product and pricing strategies.

Michigan: Facing Deep Price Compression with Premium Resilience

Michigan’s story is particularly compelling, given its distinction of having the lowest average retail prices across all BDSA-tracked markets. With an Equivalized Average Retail Price of just $5.40/gram across all categories in Sept-Nov. 2023, Michigan’s market faces what is perhaps the most dramatic overall price compression. 

Despite this, the premium tier displayed remarkable resilience with a minor -1.2 percent drop, contrasting sharply against the mid-tier and value segments’ declines of -17 and -15 percent, respectively. This trend not only highlights the overall market’s pricing challenges, but also illuminates a consumer shift toward premium products as a bright spot in a tightening market. The top 10 premium brands in Michigan further exemplify this trend, achieving +45 percent more sales than the top ten value brands.

California: Premiumization Amidst Market Challenges

In California, the market’s response to price compression, especially in the vape and flower categories, sheds light on shifting consumer preferences. Despite facing a competitive market and significant challenges from the illicit market, premium tier vape products experienced a remarkable surge in sales. These premium products saw a +62 percent increase in sales, significantly outpacing their mid-tier counterparts, highlighting the opportunity for brands to differentiate themselves through high-quality offerings.

Consumer Insights: The Driving Force Behind Choices

Diving into BDSA’s Consumer Insights reveals the underlying currents shaping these market trends. Brand familiarity has emerged as a significant influencer in product choice, cited by 24 percent of consumers across the U.S. This suggests an opportunity for brands to focus on building a strong brand identity and customer loyalty. What’s more, the role of cannabis retailers as a key information source for 39 percent of consumers highlights the importance of effective retail strategies and consumer education in influencing purchase decisions.

Crafting Strategies for Success in the Face of Price Compression

The insights gleaned from California, Massachusetts, and Michigan, coupled with the significant influence of brand recognition and retail strategies, lay the groundwork for developing robust approaches to navigate and capitalize on the market dynamics. 

It’s essentially a blueprint for crafting successful strategies in response to the challenges and opportunities of price compression.

As the cannabis industry continues to evolve post-legalization, one thing becomes increasingly clear: Price compression will remain a significant factor shaping the market. However, this doesn’t signal an inevitable decline. On the contrary, with a blend of innovation and tactical business acumen, brands can successfully circumvent these challenges. 

The insights from California, Massachusetts, and Michigan provide valuable lessons for crafting effective strategies.

1. Leverage Brand Recognition

Deepen Customer Engagement: In Massachusetts, where price falls have been dramatic, the importance of customer loyalty is paramount. Brands can utilize platforms like social media and content marketing to engage their audience. For instance, a brand could create an interactive online campaign that invites consumers to share their experiences, fostering a community around the brand.
Innovate in Brand Messaging: Drawing inspiration from Michigan’s premium market success, crafting compelling narratives that highlight the uniqueness and exclusivity of products can resonate deeply with consumers. A significant part of this success in Michigan can be attributed to local, homegrown brands. These brands have effectively built strong identities in the state, capturing a large share of the top brands despite the presence of significant investment by Multi-State Operators (MSOs). For instance, a brand could distinguish itself in a crowded market by launching a storytelling campaign that showcases the craftsmanship of its products, thereby connecting with local pride and community values.
Data-Driven Product Development: Using consumer feedback and market data, brands can refine their products to meet evolving demands. For instance, California’s surge in premium vape sales could inspire a brand to develop a line of high-end, technologically advanced vape products.

2. Embrace Premiumization

Craft a Premium Experience: California’s market, with its significant shift toward premium products, illustrates the value of focusing on the entire customer experience. This could include investing in high-quality packaging or offering personalized customer services.
Targeted Marketing: Develop marketing campaigns that directly speak to a discerning customer base. For example, a brand could use targeted digital advertising to reach consumers who have shown an interest in premium cannabis products.
Strategic Pricing: Reflecting the premium nature of products in pricing, while being mindful of market thresholds, can position a brand effectively in the premium segment. This strategy aligns with Michigan’s trend of premium products outperforming value items in sales.

3. Adapt Product Offerings

Diversify Product Line: Introducing a range of products that cater to diverse consumer preferences can be key. For example, a brand might expand its product line to include both high-potency options for experienced consumers and more accessible, lower-dose products for new shoppers.
Consumer-Centric Design: Designing products with the end-user in mind and focusing on ease of use and convenience can significantly boost brand appeal. A real-world application could be developing user-friendly packaging that simplifies the consumption process.
Feedback Loops: Establishing feedback mechanisms, such as customer surveys or interactive social media polls, helps brands stay attuned to consumer needs and preferences, allowing for continual adaptation of product lines.

Harnessing BDSA’s Insights for Future-Ready Cannabis Strategies

BDSA stands at the forefront of guiding cannabis brands through an ever-changing market landscape. Our expertise in Retail Sales Tracking (RST), understanding price tiers, and consumer insights forms the backbone of effective strategy development for businesses in this industry.

Retail Sales Tracking: By analyzing Retail Sales data, brands can gain insights into sales trends, consumer purchasing patterns, and market movements.
Understanding Price Tiers: Insights into how different price tiers are performing can help in strategically positioning products in the market, as well as adjust pricing as the greater market pricing shifts. 
Consumer Insights: Detailed consumer data helps in understanding customer preferences, behavior, and expectations, allowing for more targeted product development and marketing strategies.

At BDSA, our commitment extends beyond mere numbers on a page. We aim to empower your brand with strategic insights for innovation, effective pricing decisions, promotional tactics, and targeted marketing. Our goal is to turn insights into a springboard for success, guiding you toward a sustainable and prosperous future in the cannabis industry. Together, we can transform challenges into opportunities, leveraging data to create a significant and lasting market presence.

Check out the latest BDSA 5-Year Market Forecast webinar to get more insights on the future of the legal cannabis industry. Request a demo to learn more about BDSA products & services.