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

Terrace Community Fund was able to set up the Dare to Dream Fund with a significant donation from Trumpeter Donnie Clark. (File photo)
Dare to Dream Fund set up after a large donation from musician Donnie Clark

The fund will provide financial support for the Dare to Dream music program in Terrace and Thornhill

The average selling price of a single-family home in Terrace has climbed 26 per cent in the last year. (Jonathan Hayward/The Canadian Press)
House prices soar in Terrace

Average prices increased by 26 per cent

Nurse Vicki Niemi administers a dose of the Pfizer-BioNTech COVID-19 vaccine to Joyce, 88, on Mar. 23, 2020 at the Terrace Sportsplex. All adults in Terrace are now eligible to register for a COVID-19 vaccination. (Ben Bogstie/Terrace Standard)
All adults in Terrace can now register for a COVID-19 vaccine appointment

Community members can register by calling 833-838-2323 or visiting getvaccinated.gov.bc.ca

April 2020 to March 2021 was the second wettest year on record since at least 1969, according to Environment Canada. (Ben Bogstie/Terrace Standard)
VIDEO: Terrace records wettest spell in over a half-century

Terrace saw close to 1,500 millimetres of precipitation between April 2020 and March 2021

Terrace fire department responded to a call from Skeena Saw Mills at the early hours of Friday morning. (Binny Paul/ Terrace Standard)
UPDATE: Fire crews respond to early morning incident at Skeena Sawmills

No injuries were reported as mill workers immediately alerted the fire department after seeing smoke

Conservative leader Erin O’Toole holds a press conference on Parliament Hill in Ottawa on Tuesday, April 6, 2020. Top Tory leaders of past and present will speak with supporters today about what a conservative economic recovery from COVID-19 could look like. THE CANADIAN PRESS/Sean Kilpatrick
O’Toole to vote against Conservative MP’s private bill on ‘sex-selective abortion’

Erin O’Toole said he supports a woman’s right to choose and will personally vote against the private member’s bill

A sign on a shop window indicates the store is closed in Ottawa, Monday March 23, 2020. The Canadian Federation of Independent Business is raising its estimate for the number of businesses that are considering the possibility of closing permanently. THE CANADIAN PRESS/Adrian Wyld
Small business struggling amid COVID-19 pandemic looks for aid in Liberals’ budget

President Dan Kelly said it is crucial to maintain programs to help businesses to the other side of the pandemic

The National Security and Intelligence Committee of Parliamentarians says that includes attempts to steal Canadian research on COVID-19 and vaccines, and sow misinformation. (AP Photo/Esteban Felix)
Intelligence committee warns China, Russia targeting Canadian COVID-19 research

Committee also found that the terrorist threat to Canada has shifted since its last such assessment

Part of the massive mess left behind in a Spallumcheen rental home owned by Wes Burden, whose tenants bolted from the property in the middle of the night. Burden is now facing a hefty cleaning and repair bill as a result. (Photo submitted)
Tenants disappear in the night leaving Okanagan home trashed with junk, feces

Spallumcheen rental rooms filled with junk, human and animal feces; landlord scared to rent again

Parliament Hill is viewed below a Canada flag in Gatineau, Quebec, Friday, Sept. 18, 2020. A new poll suggests most Canadians are feeling more grateful for what they have in 2020 as a result of COVID-19 pandemic.THE CANADIAN PRESS/Sean Kilpatrick
Canada’s greenhouse gas emissions increased slightly in 2019: report

2019 report shows Canada emitted about one million tonnes more of these gases than the previous year

Dr. E. Kwok administers a COVID-19 vaccine to a recipient at a vaccination clinic run by Vancouver Coastal Health, in Richmond, B.C., Saturday, April 10, 2021. THE CANADIAN PRESS/Jonathan Hayward
B.C. to register people ages 40+ for COVID-19 vaccines in April

Appointments are currently being booked for people ages 66 and up

A volunteer disinfects a historical Mohabat Khan mosque ahead of the upcoming Muslim fasting month of Ramadan, in Peshawar, Pakistan, Friday, April 9, 2021. (AP Photo/Muhammad Sajjad)
For Canadian Muslims, second pandemic Ramadan is a time of hope and sadness

Many members of the association are trying to find ways ‘to help people stay connected to one another’

South Surrey farmland, March 2020. The province’s crackdown on secondary residences sparked protests that have the NDP government engaged in a lengthy rewrite of its legislation. (Tracy Holmes/Peace Arch News)
B.C. NDP now wants to keep even ‘non-farmers’ on the land

‘Grandfathering’ of second residences extended again

Photos of Vancouver Canucks players are pictured outside the closed box office of Rogers Arena in downtown Vancouver Thursday, April 8, 2021. The Vancouver Canucks say 25 players and coaches have tested positive during a COVID-19 outbreak that involves a variant of the virus. It is now the biggest reported outbreak in the NHL this season. THE CANADIAN PRESS/Jonathan Hayward
Canucks’ return to practice pushed back as player added to COVID protocol list

COVID outbreak has led to eight games being cancelled

Most Read