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Why HEXO Is Launching a Low-Cost Product

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Yesterday, HEXO (HEXO) announced the launch of a lower-priced cannabis brand, Original Stash. Priced at $4.49 per gram, it will appeal to customers seeking a regulated adult-use product at black market prices. Consumers can purchase 28 grams of cannabis at a retail price of $125.70 in Quebec.

The first product under the Original Stash brand is OS.210, a hybrid sativa dried-flower blend with a 12%–18% tetrahydrocannabinol concentration. The product is available in SQDC retail stores as of today. Later on, the company plans to make it available nationally.

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HEXO targets market share

In the Government of Canada’s second-quarter national cannabis survey, 42.7% of respondents reported purchasing their cannabis from illicit sources, and 49.5% from legal sources. Although legal cannabis purchases exceeded illicit purchases, the latter is still significant.

In its press release yesterday, HEXO described black market cannabis products as “illegal, unregulated, and not tested.” The company also indicated that such products often “contain heavy metals, pesticides, and other contaminants.” It added that illegal products are frequently packaged in ways that make it difficult for average customers to differentiate them from legal products.

Recently, health officials have been considering the role of black-market cartridges and vitamin E acetate used in black market vape products in the vaping crisis. Such news could affect the credibility and acceptance of this still-nascent industry. Therefore, it’s essential for regulated cannabis players to create awareness and offer alternatives to black market products.

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Lower-priced products may prove useful in a recession

Launching a low-priced brand could also help HEXO in a recession. Although the US yield curve is no longer inverted, it was inverted for 79 days this year. Economists think yield curve inversion is a strong recessionary signal.

During a recession, consumers generally switch to lower-priced versions of addictive substances such as tobacco and alcohol. Therefore, by launching the Original Stash brand, HEXO may keep consumers from switching.

In its pre-earnings announcement, HEXO discussed pricing pressure in the cannabis industry. Its recent launch may also be a part of the company’s strategy to face this ongoing pressure. If Aphria, Aurora Cannabis, Cronos Group, and Canopy Growth are feeling the same pressure, they may also launch low-priced cannabis products.

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