Cannabis - Pricing: Quality and Desired Effect
Nationally, the average price of an ounce of cannabis differs by 22.6% between a medium- and a high-quality product. There are also notable variations in wholesale prices, depending on the quality of the marijuana flower. However, in the current state of the industry, it is often difficult to assess the quality, and consumers are likely to choose cheaper non-premium options. One of the ways to measure it and predict the effects is by knowing the levels of cannabinoids, which affect both the prices of flowers and cannabis-infused products.
Average Prices Across the U.S.
- According to the Oxford Treatment Center, the national average price for the ounce of high-quality cannabis is $326, compared to $266 for the same quantity of medium-quality cannabis, which accounts for a 22.6% difference.
- There are states for which the difference is even greater. For example, in Alabama, the high-quality marijuana costs $343 per ounce, and the medium-quality marijuana — $229 per ounce, so consumers have to pay 49.8% more for better quality.
- In Mississippi, the price of the ounce of medium-quality cannabis is $170, and for the same amount of high-quality cannabis — $349. Therefore, the latter is 105.3% more expensive.
- Other states for which the difference is above-average include Indiana, Georgia, Ohio, Tennessee, South Carolina, and West Virginia.
- However, in Washington, New Hampshire, Nevada, Montana, Michigan, and the District of Colombia, the price of the ounce of high-quality cannabis doesn't differ much from the price of the same amount of medium-quality one.
- Overall, it can be observed that the ounce of cannabis is more expensive in the states where it's not legal, such as the District of Colombia, Dakota, and Virginia.
Wholesale Cannabis Pricing
- As reported by MJBizDaily, in Oregon, the wholesale prices for the pound of recreational-use cannabis flower range from $1,000 to $1,500 for average quality and from $1,500 to $2,000 for high quality. The figures are for a plant grown indoors.
- They also note that while the market demands affordable cannabis, regardless of its lower quality, most wholesalers try to differentiate themselves by offering high-quality or organic products, which are associated with a higher price.
- USA Today claims that it is possible to buy wholesale cannabis for only $300 per pound, while the top-quality product can sell for more than $1,800 for the same amount.
- The article notes that many consumers are not ready to pay more for better quality, because weed fans, unlike connoisseurs of wine or craft beer, are not used to having a choice regarding the quality of cannabis they purchase.
- Also, there are growers who sell average-quality products as organic, which affects potential buyers' trust.
- Still, according to the article, there are consumers who can see that products that were branded and sold as those that don't contain pesticides and fertilizers (and thus priced higher) have more desirable effects, providing " a purer, cleaner "high.""
- It is explained that if cannabis is grown without chemicals, it has to cost more because the growing process is more expensive.
The Quality is Hard to Differentiate
- Earlier this year, Deloitte published a report, "Cannabis Retailing: A Look at the Cannabis Industry Post-Legalization."
- According to the firm, most licensed producers position their cannabis products as premium. However, while the positioning shows in their pricing strategies, it is hard to recognize the real difference in quality.
- It can be assumed that the differentiation is difficult because it is not possible to measure the variation in effects.
- As a consequence of higher prices for the quality that is only allegedly better, consumers are more likely to turn to the illegal market.
- The average price for a gram of a legal product, which is usually branded as premium, is $9.99, while the same quantity on the illegal market costs $6.37.
- It is also worth noting that the quality is sometimes better on the illicit market, because it is easier to control it when the production is on a smaller scale.
Potency as a Key Factor that Affects Pricing
- According to Medical Marijuana Inc., potency is one of the main factors that influence the final price of the cannabis flower, along with freshness, the quality of buds, and taxes.
- Their view is shared by AJ Davis, a data scientist who created a model for pricing cannabis products. He thinks that key elements that tend to be considered when setting a price, in terms of the flower's features, are the flower's fragrance, the density of buds, the type of cannabis, where it was grown, and potency.
- The potency of the cannabis flower can be measured with the levels of cannabinoids it contains, namely, THC and CBD. The effects of consumption are more intense with cannabis, which contains a lot of cannabinoids.
- At the same time, the price typically goes up together with greater potency.
- While it is impossible to assess the potency without laboratory testing, most states started requiring it after legalizing cannabis.
Desired Effects Dictate High Prices of Cannabis-Infused Products
- Similarly, the price of cannabis-infused products raises together with their potency. Higher potency is supposed to produce more desirable effects.
- While experts often stress that the most important pricing factor is the THC content, CBD is becoming increasingly more desired for its health benefits, which affects the final price.
- Adding CBD to cannabis-infused edibles increased their market share by 22% in 2018. They tend to be sold for 50% more than THC-only products.
- Additionally, other active ingredients, such as ginseng, may also increase the price. They are added to cannabis-infused products to enhance the beneficial effects.
- Furthermore, cannabis-infused beverages, capsules, edibles, tinctures, and topicals may be priced higher because they are wellness products. Consumers are likely to pay more for them, as they are marketed as cures for various health issues.
We used an article published on Medium to provide context around the correlation between potency and pricing. While some articles on the site lack credibility, because everyone can add their content there, we verified that the author has a cannabis-related publication.
To calculate the percentage difference between the average price of the ounce of medium- and high-quality cannabis, we used the following formula:
(the price of the ounce of high-quality cannabis — the price of the ounce of medium-quality cannabis)/the price of the ounce of medium-quality cannabis * 100% = the percentage difference
We used the same formula to calculate the percentage difference for Alabama and Mississippi.