Cannabis plants are seen during a tour of a Hexo Corp. production facility, Thursday, October 11, 2018 in Masson Angers, Que. THE CANADIAN PRESS/Adrian Wyld

Canadian company to launch low-cost cannabis product to undercut illicit sellers

Company targeting those who still buy illegally

Cannabis company Hexo Corp. is moving to undercut prices in the illicit market with a new 28-gram product that costs consumers as much as one dollar less per gram than at the average illegal dispensary.

The product, under the brand Original Stash, which will be on sale in Quebec cannabis stores starting Thursday for $125.70, or $4.49 per gram, including taxes, the company said.

That’s cheaper than the average cost of a gram of cannabis at $7.37 per gram during the third quarter, with the price of legal and illegal weed at $10.23 and $5.59 per gram, respectively, according to the latest Statistics Canada analysis of crowdsourced data.

Hexo is targeting the roughly half of Canadians who — one year after the legalization of recreational pot — are still buying weed from the illicit market, its chief executive Sebastien St-Louis said.

“That 51 per cent of Canadians that buys illegally, when they walk into their dealer, they don’t pay tax… Hexo is absorbing that cost for them. We’ve listened, we’re removing their reason for not shopping legal,” he said in an interview.

He said Hexo is able to offer a one ounce, or 28 gram, product at this relatively low price point for various reasons, such as less packaging needed for the bulk size rather than individual packaging for each gram or 3.5 gram product. St. Louis added that the licensed producer increased its production scale and lower hydroelectric costs in Quebec also allow the company to reduce its price.

READ MORE: B.C. selling less legal cannabis than any province other than P.E.I.

Hexo worked with Quebec’s provincial cannabis corporation on this pricing strategy and it will be on sale exclusively at its shops starting tomorrow.

The company is currently working with entities in other provinces, such as Ontario and Alberta, to do a similar low-cost product.

Canada legalized recreational cannabis on Oct. 17 last year, making it the first G7 country and the second country in the world to take that landmark step.

Once the initial product shortages and supply chain bottlenecks eased, legal cannabis sales in Canada have grown but a large proportion of buyers continue to turn to illegal sources for pot.

In the second quarter, household expenditures on cannabis at licensed retailers was $443 million, up from $172 million in fourth quarter of 2018, according to Statistics Canada. But pot expenditures at unlicensed retailers amounted to $918 million, down from $1.17 billion in the fourth quarter of last year.

When deciding where to buy cannabis, 76 per cent of Canadians who consumed pot in the first half of the year cited quality and safety as an important consideration while 42 per cent mainly considered price, according to Statistics Canada survey results released in August.

St. Louis said that the cannabis used in its Original Stash products are only low price, but not low quality.

“This is high-quality cannabis flower, it has more THC than what’s available on the black market,” he said, noting that it has between 12 and 18 per cent tetrahydrocannabinol, the compound that produces a high.

He added that it is not a loss leader, but would not talk about specific margins until Hexo reports its earnings on Oct. 24.

READ MORE: B.C. still losing money on legalized marijuana sales

When asked about a potential price war among other large-scale producers, as signs of pricing pressure emerge, St. Louis said he was not concerned.

“It’s not much of a war, if the other side has no chance,” he said. “Most of the other licensed producers don’t have the cost structure that Hexo does.”

He also noted that with capital drying up in the broader market, most of the production facilities underway “will never get finished,” he said.

The product launch comes after Hexo lowered its net revenues forecast for its upcoming fourth-quarter ended July 31, and it withdrew its $400 million net revenue guidance for its 2020 financial year.

St. Louis said more details on its guidance would be provided during its upcoming earnings, but said the decision to pull back stemmed from the uncertainty facing the cannabis industry. He expects that this low-cost product will be a key part of its strategy to reach 20-plus per cent market share in the coming years and ramp up its revenues.

“We’re very bullish on Original Stash, how its going to perform. But we’ll monitor it,” he said. “We didn’t want to be in a situation to commit to specifics in this unsure industry.”

Armina Ligaya, The Canadian Press


Like us on Facebook and follow us on Twitter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Comments are closed

Just Posted

Township council mulls climate action costs

Public consultation begins later this year on a 20-year plan to cut carbon emissions

VIDEO: Plane that reportedly crashed into Fraser River was from Delta flight school, Transportation Safety Board confirms

Cessna was flying over the river near Maple Ridge and Langley when it disappeared from radar

‘It’s not just about our thrift shop’: Alder Inn plans asked to include community parking

Fibromyalgia Wellspring founder Cheryl Young is asking the Township to use downtown lots for parking

VIDEO: Langley City moves to limit vape shops, tattoo parlors and spas

New regulations would forbid new outlets within 400 metres of existing businesses

The pandemic is widening Canada’s workplace gender gap

Gender pay gap is incentivizing fathers to work while mothers watch children, a new B.C. study has found

B.C. sets terms to review police, mental health, race relations

MLAs to recommend Police Act changes by May 2021

Feds announce $8.3M to deal with ‘ghost’ fishing gear in B.C. waters

Ghost gear accounts for up to 70 per cent of all macro-plastics in the ocean by weight

Almost 99% less land in B.C. burned this year compared to 2018

2018 was the worst year on record for wildfires

B.C. orders Coastal GasLink to stop pipeline construction near protected wetlands

The 670-kilometre pipeline is planned to transport natural gas from northeast B.C. to Kitimat

Sunflower Highway, art initiative to connect Fraser Valley, Thompson-Nicola and Okanagan

Sunflowers made out of reclaimed materials will be installed on public art trails

B.C. tent camps persist as hotels, housing bought for homeless

Current estimate 40 camps, homeless counts stalled by COVID-19

Recent COVID-19 hotspots show ‘cases can reemerge at anytime’ in Canada, feds warn

Njoo said the recent increase in reproductive number brings home the importance of watching for outbreaks

Most Read