Aurora Cannabis May Hike its Prices in a Value-Obsessed Cannabis Market: CEO

Article by Jeff Lagerquist, Yahoo Finance Canada

Aurora Cannabis may hike its prices in a value-obsessed pot market: CEO Jeff LagerquistYahoo Finance CanadaSeptember 23, 2020

Aurora Cannabis (ACB.TO)(ACB) is betting consumers will be willing to swallow price hikes on its higher-end pot as the company ups its focus on more profitable premium products. The strategy shift spelled out by new chief executive officer Miguel Martin on Tuesday comes as discount brands surge in popularity across Canada’s legal sector.

“I don’t think it’s risky. If you look at the Canadian market and you look at other markets such as Colorado and California, premium brands exist today and do well,” he told Yahoo Finance Canada in an interview. “It doesn’t mean we’re walking away from discount [cannabis], but it means having a balanced approach in a way that we didn’t before.”

Shares of the Edmonton-based cannabis company fell more than 25 per cent on Wednesday, erasing a 15 per cent gain in Tuesday’s session prior to the release of fourth-quarter results after the closing bell. Aurora lost more than $1.8 billion in the three months ended June 30, due to a string of impairment charges, adding to $3.3 billion in losses in its 2020 fiscal year.

Aurora said its increasingly popular Daily Special value brand weighed on the average selling price per gram in the quarter. Daily Special, which sells at the Ontario Cannabis Store for $4.46 per gram, is among the crop of cheaper pot offered by licenced producers to combat an illegal market that has remained robust nearly two years into recreational legalization.

Daily Special accounted for 62 per cent of Aurora’s consumer dried flower sales, up from 35 per cent in the prior three months. The company previously noted that data from March showed the strains represented nine per cent of all legal dried flower sold in Ontario.

More competitive prices may be among the factors helping the legal sector gain the upper hand. Data from Statistics Canada showed spending on legal cannabis (medical and non-medical) in the second quarter of the year outpaced the illicit market for the first time. A survey released on Tuesday by the Brightfield Group noted new cannabis users are flocking to budget brands, especially during the COVID-19 pandemic.

“If everybody thinks it’s just a race to the bottom, then every single [licenced producer] out there has got problems, and we should all be changing the way we do business. There is no other market that we can look at that has a corollary where everything is just value,” Martin said.

Aurora said it recently lost its top position in the Canadian consumer market. Martin, who was named CEO on Sept. 8, said he plans to prioritize growth of the company’s “premium and super-premium” categories ahead of overall market share in order to achieve profitability by the second quarter of 2021. His plan calls for greater focus on Aurora’s higher-end brands like Whistler Cannabis, San Rafael ‘71 and the namesake Aurora line.

“Overall market share is not a true indicator of a company’s profitability,” he told analysts on Tuesday evening. “I think the company got a bit distracted by the success that they saw with that discount offering, which was Daily Special, which sort of delayed other inputs such as vapor and pre-rolls.”

Martin joined Aurora four months ago when the Canadian pot producer acquired Reliva, the U.S. CBD distributor where he served as chief executive officer. He started his first quarterly earnings call as Aurora’s CEO on Tuesday with a summary of his work at consumer packaged goods (CPG) firms, which include tobacco distributor Altria Group (MO) and electronic cigarette company Logic Technology.

It’s these experiences, and data he cities from U.S. legal states, that inform his strategy to target consumers with premium offerings.

“You are going to hear me say this time and time again. Pushing the company into focusing on its premium assets in flower and vapor and pre-rolled, and implementing classic CPG sales trade marketing consumer engagement methodology, that’s what’s worked for others and the rewards have been outsized,” he said.

“There is greater opportunity, and there is evidence when you look at more mature markets like Colorado or California that consumers are willing to pay more. So yes, [price] adjustments do need to be made in order to make sure we take advantage of that.”

Read the full article here.

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