While many cannabis businesses are using data for market research, few dispensaries in competitive markets analyze local data to understand how their business stacks up against their peers.
In this first installment of our public research blog, we break down the cutthroat market for marijuana flower in Los Angeles by investigating prices at the zip code level. This post will draw on Higher Data’s proprietary retail price data that aggregates real-time prices from dispensary menus across the United States and Canada.
How can dispensaries set better prices?
The average price of a gram of cannabis in California does little to inform how a dispensary manager should set prices. Customers shopping for cannabis near the popular Venice Boardwalk in Los Angeles will expect to pay higher prices than customers on the outskirts of town. To make more informed pricing decisions, managers need more granular local data that can show market conditions in their town or even their zip code. Similarly, this data can help growing businesses decide the most profitable areas to open new dispensary branches.
Our analysis shows how powerful local data can be using the example of Los Angeles County. To analyze how prices vary across the county, one type of product is selected: one gram of marijuana flower. Cannabis extracts and edibles as well as high end flower products like moon rocks and lower end products like trim and stems are excluded to create a consistent, unbiased price index. Higher Data’s retail price data covers 1,562 dispensary storefronts in Los Angeles county. Each dispensary is given equal weight by first calculating the mean price of one gram of flower in each store and then calculating the mean price for all dispensaries in each zip code.
Average flower prices, by zip code
The above map shows that the beach communities of Malibu, Santa Monica, Venice, and Long Beach all pay relatively high prices. Similarly, dispensaries Hollywood, Burbank, and Downtown have higher prices. The lowest prices for a gram of flower can be found in Southern Los Angeles and some zip codes in the northern hills. There is still price variation within these communities, which demonstrates the need to analyze smaller geographic units than even a county or community. The range of prices between zip codes is quite broad. Dispensaries in the most expensive zip codes are charging nearly double the price those in the least expensive zip codes.
What drives price differences across a county like Los Angeles?
Local demand certainly plays a factor, but so do other price drivers like competition and operation costs. A dispensary located in a neighborhood with several other dispensaries may have to charge lower prices to attract customers. To test this hypothesis, average prices of a zip code can be compared to the number of dispensaries operating in a zip code. As shown below, there appears to be some correlation between dispensary density and retail prices. For example, zip codes in southern Los Angeles that have lower average prices also have a greater number of dispensaries. Conversely, eastern zip codes with higher average prices have fewer dispensaries per zip code.
Average flower prices vs. dispensary density, by zip code
Higher Data’s advanced analytics can also produce a quantitative answer to this question by using algorithms that factor in the impact of new dispensaries in nearby zip codes to calculate the competitive effects of each additional dispensary in a given area.
Other sources of price variation can arise from other sources of competition, such as delivery services, and operating costs that are passed onto customers. Businesses on the coastal west side of LA can expect to pay about double what their peers in Southern Los Angeles pay in rent. Downtown rents are similarly high and rents decline starting in Northern LA with the lowest costs seen in the east in the San Gabriel Valley. Taking into account all of these factors can help companies make more strategic location decisions and allow managers to set better, more competitive prices.
Interested in learning how Higher Data can break down the competitive landscape in your market?
Contact us to learn more about how our comprehensive data can help your business make more informed decisions and out-compete your peers. You can reach us at team@higher-data.com or set up a free analytics consultation here.