Cannabis Not Suffering Retail Inflation

Coins balancing on seesaw inflation Andrey Popov mg Magazine mgretailer
Image: Andrey_Popov / Shutterstock

If you’ve been to the grocery store lately, you’ve probably noticed prices creeping up. The increase is directly caused by a recent spike in inflation that has both consumers and economists worried. Fortunately for cannabis consumers, Headset‘s data indicates inflation hasn’t crept into the cannabis industry — at least for now. Let’s take a closer look at what the data tells.

What is inflation and why should you care?

According to Forbes, “inflation occurs when prices rise, decreasing the purchasing power of your dollars.” Essentially, inflation is the reason you see your dollar buying you less than it used to. It’s why bacon cost $1.46 a pound in 1980 but cost $5.58 per pound in 2020 (a nearly 282-percent increase — sorry, bacon lovers).

Advertisement

Is inflation impacting the cannabis industry?

To discern whether inflation is affecting the cannabis industry, first we must examine average prices over time. Let’s dive into the graph below, which tracks average item price across all cannabis products in U.S. recreational markets over the previous year.

Graph: Headset

Here we can see prices in most adult-use markets in the U.S. have remained fairly stable over the past twelve months. Michigan is the clear outlier with a significant drop in average item price from $25.38 in July 2020 to $19.32 in June 2021. Considering prices typically trend down in new markets, it’s unsurprising to see prices in Michigan’s two-year-old market experience a decline. Supply often can’t keep up with demand shortly after legalization, thereby driving prices up for roughly two to three years until the supply imbalance is addressed, at which point the market stabilizes.

Nevada experienced some pricing volatility during the pandemic, which can be attributed to the market’s weakened demand brought on by a sharp drop in tourism. Prices in Oregon sales increased at the beginning of 2021 but have since leveled off.

Now let’s look at the relative change in average item price from July 2020 to June 2021 by market. Michigan had the greatest decline in pricing, as reflected in the previous graph. Oregon stands out as the only market that saw an increase in average prices with a 2-percent rise over the previous twelve months. All other markets experienced little change in average prices. 

Overall, the average price data history does not show that inflation has been causing an increase in retail prices in the cannabis industry; however, examining average item prices is not the best method to evaluate the impact inflation could be having on the industry. This is because what consumers are buying and the products available in the market heavily affect the average item price. 

For example, let’s say the average prices of individual packages of flower eighths are decreasing in a given market over time. Within the same time frame, consumers start buying more premium flower at $60 per eighth rather than their usual $40-per-eighth product. The shift in consumer purchasing behavior to a more expensive product would drive up the average item price of the flower category at large. A change in purchasing patterns could cancel out the change in average prices, and the same holds true for an entire market.

A better way to understand whether inflation is having an impact is to track the prices of individual products over time, which we can do at Headset with our industry-leading real-time SKU-level retail data.

Are cannabis product prices changing over time?

Using data from all of our connected retailers, the above graph displays the median month-over-month price change for all individual cannabis products within a given market. In other words, we compared the monthly average price of a single item at one dispensary to all other products across all other retailers to uncover the monthly median price by market. 

A steady increase in prices of individual products would indicate that inflation is heavily impacting the cannabis industry, but the graph doesn’t reflect such a trend. For much of the year, prices in most markets have either stabilized or decreased, as exemplified by the multitude of points beneath the 0-percent line in the graph.

What’s going on with ‘shrinkflation’?

While inflation is a hot topic these days, you might have also noticed the term “shrinkflation” buzzing around the CPG sector (there’s even a whole subreddit dedicated to it). Shrinkflation is when manufacturers decrease the package size of their products without updating the price. This practice would be difficult, if not impossible, in cannabis, because most cannabis products are sold by weight (eighths, grams) or THC content (100mg packs). Any changes in package size would be obvious to consumers and therefore harder to market.

Although inflation is not negatively impacting consumers in the cannabis industry today, the future could look different. The cannabis industry is fast-paced and ever-evolving, so we will continue to monitor pricing and inflation in this space. If you’re interested in tracking real-time trends in the cannabis market and price fluctuations, you can with an Insights Premium subscription.


Cy-Scott-Headset-mg-Magazine-mgretailerCy Scott is co-founder and chief executive officer at Headset Inc., turning retail data into real-time cannabis market insights. He provides industry analysis and insights about innovative brands through his weekly blog, Cannabis Packaged Goods. Prior to founding Headset, he co-founded Leafly and helped grow the site into the world’s leading cannabis information resource. Along with his work at Headset, Scott founded a monthly Cannabis Tech Meetup hosting cannabis entrepreneurs and technology developers that has expanded into multiple regions throughout the U.S. Scott’s favorite strain is Tangie.

Advertisement