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

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

Just Posted

Interior Health reported 79 new cases of COVID-19 and two new death in the region Friday, Jan. 22, 2021. (Ben Hohenstatt/Juneau Empire)
79 new COVID-19 cases, two deaths reported in Interior Health

Both of Friday’s deaths were both recorded at long-term care homes

A vehicle rolled over off of the Highway 3 off ramp into the Home Hardware parking lot Jan. 21, 2021. Photo: Betsy Kline
Driver sent to hospital after vehicle roll over in Castlegar

Accident happened Thursday around 4:30 p.m.

Interior Health has set up a COVID-19 testing site in Castlegar. Photo: Betsy Kline
No new COVID-19 cases diagnosed in Castlegar for Jan. 10-16

The latest localized BCDCD COVID-19 numbers

Interior Health reported 91 new COVID-19 cases in the region Jan. 20, 2021 and three additional deaths. (Jennifer Smith - Morning Star)
95 new COVID-19 cases in Interior Health, two deaths

Another member of Vernon’s Noric House has passed

Long-term care staff and physicians from the priority group received their first dose of Moderna vaccine on Friday, Jan. 15, including Dr. Corrine Knox. Photo: Submitted
Moderna vaccine arrives in Castlegar

Vaccine rollout began in West Kootenay with long term care residents and staff the first recipients

Thursday, Jan. 28, 2021 is International Lego Day. (Jenna Hauck/ Chilliwack Progress)
Unofficial holidays: Here’s what people are celebrating for the week of Jan. 24 to 30

Lego Day, Talk Like a Grizzled Prospector Day and Puzzle Day are all coming up this week

Economic Development and Official Languages Minister Melanie Joly responds to a question in the House of Commons Monday November 23, 2020 in Ottawa. THE CANADIAN PRESS/Adrian Wyld
Federal minister touts need for new B.C. economic development agency

Last December’s federal economic update promised a stimulus package of about $100 billion this year

FILE - In this Nov. 20, 2017, file photo, Larry King attends the 45th International Emmy Awards at the New York Hilton, in New York. Former CNN talk show host King has been hospitalized with COVID-19 for more than a week, the news channel reported Saturday, Jan. 2, 2021. CNN reported the 87-year-old King contracted the coronavirus and was undergoing treatment at Cedars-Sinai Medical Center in Los Angeles. (Photo by Andy Kropa/Invision/AP, File)
Larry King, broadcasting giant for half-century, dies at 87

King conducted an estimated 50,000 on-air interviews

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

BC Coroners Service is currently investigating a death at Canoe Cove Marina and Boatyard in North Saanich. (Black Press Media File)
Drowning death in North Saanich likely B.C.’s first in for 2021

Investigation into suspected drowning Monday night continues

Kimberly Proctor, 18, was murdered in 2010. Her family has spent many of the years since pushing for a law in her honour, that they say would help to prevent similar tragedies. (Courtesy of Jo-Anne Landolt)
Proposed law honouring murdered B.C. teen at a standstill, lacks government support

Ministry of Mental Health and Addictions has concerns with involuntary detainment portion of act

Sunnybank in Oliver. (Google Maps)
Sunnybank long-term care in Oliver reports third COVID-19 death

The facility currently has an outbreak with 35 cases attached to it

Chief Public Health Officer Theresa Tam speaks during a daily briefing in Ottawa. (THE CANADIAN PRESS/Adrian Wyld)
31 cases of COVID-19 variants detected in Canada: Health officials

Dr. Theresa Tam made announces 13 more variant COVID-19 cases in Canada

Royal Inland Hospital in Kamloops. (Dave Eagles/Kamloops This Week file photo)
COVID-19 outbreak declared at Kamloops’ Royal Inland Hospital surgical unit

Despite 6 South being a surgical unit, RIH said surgeries are continuing at the hospital

Most Read