While a scarcity of marijuana is predicted to precede any glut by various years, the potential for cannabis commoditization is already a consideration for a lot of licensed cultivators in Canada.
Greg Engel, CEO of New Brunswick-based Organigram, stated commoditization, at the least because it pertains to cannabis, boils down to 2 issues:
- Excess provide over demand for normal and low-grade cannabis.
- Products that aren’t differentiated.
Places like Colorado have seen extreme worth compression on nonpremium marijuana merchandise, however profitable premium merchandise have been capable of keep away from the commodity lure by fetching greater costs.
Canada’s licensed cultivators are already taking motion to distinguish their corporations and merchandise and to construct sustainable manufacturers for the medical marijuana and pending leisure market.
“The key for any company to avoid being pulled into a commodity market is a differentiated product, and that’s our strategy going forward,” Engel stated.
Executives cite differentiated product examples similar to premium flower and drugs and, down the street, derivative-based merchandise, edibles and drinks.
Marijuana Business Daily requested CEOs of Canada’s main marijuana corporations to share their views on learn how to keep away from falling into the commodity lure.
Will cannabis grow to be a commodity in Canada?
Aurora Cannabis CEO Terry Booth: “I feel it can turn into commoditized over time. You’ve obtained 5 years earlier than that occurs. It will all the time be a money crop, as a result of it is extremely troublesome to develop, however there’s going to be so much grown.”
Is “commodity” the correct phrase?
Canopy Growth CEO Bruce Linton: “I exploit the phrase ingredient moderately than commodity. Dried cannabis flower is more and more turning into an ingredient. The query is, do you might have processes and recipes to show the ingredient into high-value items?
“A commodity is something like wheat. Almost no wheat farmers make the bread. If it is your finished good, you’ve done your job.”
How can cultivators keep away from the commodity lure?
Linton: “The worth that is ready to be created isn’t purely by promoting dried cannabis flower, however the attraction of it as an ingredient and the way a lot you possibly can create. So that’s the place you begin stepping into extraction, formulation, completed packaged items.
“The strain on the worth of the ingredient may have virtually no bearing on the ultimate sale worth, and the actual query is: ‘Are companies able to create those finished goods – medical or adult access – that really are different, brandable, desired and sought out and paid for?’
“You have to be an inexpensive producer, but you have to do a lot more than that, like vertical integration and creating things that don’t exist yet.”
What’s a key metric to give attention to?
MedReleaf CEO Neil Closner: “An excellent metric is the worth you will get in your product. Companies rising good product are capable of cost a better worth.
“That validates our product and tells me it’s differentiated in a means that makes individuals need to spend extra for it.
“Another is buyer churn. Our clients stick with us, which speaks volumes about not solely product high quality however the different essential measures like customer support and help.
“The method we talk about high quality is from a quantitative and a qualitative standpoint. From an goal standpoint, we take a look at batch-to-batch cannabinoid content material consistency, efficiency, the bio-burden – does it have to be irradiated to move Health Canada’s requirements, consistency of availability?
“Those are the target measurements.
“Then there is the subjective side that leads a lot more into the recreational business. The subjective measurements include how it smells, tastes, more of the thing a wine connoisseur would measure wine by.”
How do you get a better worth on your product?
Cronos Group CEO Mike Gorenstein: “Consumers search for comparable issues in cannabis as they do in alcohol.
“Like alcohol, worth factors shall be relative to buyer expertise. When you go to a pleasant restaurant, you choose a high quality bottle of wine or scotch due to style, aroma and model, not alcohol content material.
“When’s the final time you went out and ordered a glass of Everclear?
“Alcohol as an lively ingredient may be regarded as a commodity the identical approach that THC could be regarded as a commodity. But there are rather more numerous results you will get from cannabis than alcohol due to what number of extra lively components there are.
“So with the ability to ship totally different psychoactive results and totally different tastes and aromas will finally drive differentiation and worth factors.
What if corporations fail to get a better worth for his or her product?
Closner: “For them, it is going to be a race to be a commodity grower. To be farmers. That’s not a enterprise I need to be in.
“That’s why we expect branding and high quality assurance are necessary, and why we’ve got the most important analysis and improvement division within the enterprise.
“We have been the primary producer to return out with a capsule, and now we’re ready for approval to promote our gelcap. We got here out with a cream.
“A great chunk of our time is spent on new product improvement so we will proceed to distinguish on merchandise.
“As regulations evolve and new form factors emerge, those that deliver on a unique or elevated experience will command a premium – as is the case in every industry.”
MedReleaf, Canopy Growth, Aurora Cannabis, Cronos Group are traded on the Toronto Stock Exchange. Organigram‘s shares are listed on the Venture Exchange.
Matt Lamers could be reached at [email protected]
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