When a product becomes a commodity, it means that the product offered has no significantly distinguishable characteristics from one producer to the other. For example, corn produced by one farmer is more or less similar to corn produced by another farmer. Thus, for a commodity product, companies that produce it don’t have the freedom to increase prices because a customer would switch to a lower-priced source given that the underlying product is almost identical. Commoditized products command a lower margin and result in lower returns than non-commoditized products.
What about cannabis?
Whether cannabis, especially in the form of a dried flower, will become a commodity has been one question on the minds of many cannabis players (HMMJ), including Canopy Growth (WEED), Cronos Group (CRON), Aphria (APHA), and Supreme Cannabis (SPRWF).
Canopy Growth’s CEO, Bruce Linton, believes that dried flower will continue to command a premium—that is, it won’t become a commodity—because consumers want good-quality products (that command a premium) to maintain a certain social status among users. Linton added that value-added products could also command a premium. Read New Formats Canopy Growth Plans to Introduce to learn more.