Pricing Compression: Increased Sales vs Decreased Revenue

Recently, we’ve seen increasing sales and decreasing cannabis retail store revenue across Ontario.

On the surface, cannabis retail is booming across Ontario. In April 2022 alone, the Ontario cannabis retail market made $165M.

In fact, sales have trended upwards fairly consistently since May of 2020; with sales in Ontario growing exponentially faster than Canada’s other largest province, Alberta.

Despite the impressive growth, the market has experienced as a whole, the average retailer in Ontario experienced a year-to-year sales growth of -3.4% from April 2020 to April 2021. That number dropped to -14% from 2021 to 2022.

This begs the question, how can sales be increasing, while stores are seeing their annual revenue decreasing?

Headset hit the nail on the head when they attribute these declines to two major factors: price compression and market saturation.

Let’s look at a few very important statistics:

• Over the last year, the Average Unit Price in Ontario decreased by -13.2%
• Flower & Pre-Roll categories have seen an average price reduction of -10%; Vape pens and cartridges fell even further to -17%
• The number of retail stores in Ontario jumped from 338 on December 31st, 2020 to over 1,600 locations by the end of 2021 - and there are more openings all the time

The dramatic increase in competition along with a crippling price compression trend within the industry has completely changed the way cannabis retailers need to market and operate their stores.