Wholesale Recreational Cannabis Prices Finally Drop
But how will the decrease change the current landscape?
In Colorado, those that run in cannabis cultivation circles have long been discussing and predicting just when the recreational market prices would even out. Currently, medical product is less expensive to acquire than product grown for recreational purposes. For example, a gram of medical pot from KindLove dispensary in Glendale can be purchased for $12. In contrast, a gram of recreational product from the same dispensary will run you $15. Now, after 2 ½ years of a regulated recreational market, that anticipated leveling out of prices is finally becoming a reality as wholesale price points for cannabis in Colorado drop significantly.
“We all knew it was coming, because more and more production capacity is coming online… Medical is hanging in there, but rec is really finally starting to plummet…Probably 30% in the last four or five months.” says Jay Czarkowski, of Boulder-based Canna Advisors.
Another source, Cannabase, is a wholesale marketplace for licensed cultivators and retailers in Colorado and has a wealth of data to back up insider claims and reports of a drastic decrease in price for wholesale product. They are able to provide such conclusive and compelling information because they estimate that a good 70% of the licensed businesses in the state that purchase wholesale cannabis product are registered through their site.
According to the Cannabase numbers, in January of 2016 prices for wholesale recreational flower were hovering around an average of $2,106 per pound of product. However, throughout the year the asking price has decreased steadily and in June of this year, one pound of wholesale recreationally cultivated flower averaged at a cost of only $1402. That is a decrease of close to $1000 in just 6 months. Side note – the lowest amount that was paid for a pound (versus the average listed above) in January was $1,800 and in June was down to just $750.
Retail shops and edibles producers know it is a great time for their respective businesses and they have the opportunity to use this severe disparity in price to their advantage. If these businesses are able to leverage the steep drop and capitalize on the difference, they stand to see an increase in revenue.
Interestingly, the decrease in recreational wholesale product has not considerably affected the wholesale medical market. In January of this year, a medical pound could be purchased for $1,900. By the end of this past June the cost was only $50 cheaper at $1,850.
Why has the cost decreased so significantly in such a short period of time…and for one market but not for the other.
For one reason, over the last year, the recreational marijuana cultivation industry has exploded. Close to 100 new rec. cannabis cultivation licenses have been added to the existing list since June of 2015, bringing the total number of dispensaries in the state of Colorado from 465 to 554. That is a 20% increase in 12 months. Conversely, when the same statistics are examined on the medical side, a similar trend is not seen. In fact, medical cultivators have only increased by 24 total, growing from 764 to 788 in the last year. That is an increase of only 3%, which pales in comparison to the recreational stats.
CEO of Cannabase, Jennifer Beck, weighs in on the anomaly saying, “It is an eerily simple problem. Capital is attracted to grows. Everyone wants to be the Bud Light, the Coors, the Bob Marley, the defining brand, and there aren’t enough people in Colorado to buy up all this product in real time…I’m concerned that we’re going to have way too much overproduction.”
In other words, the market is being flooded with recreational product and with so much product and not quite as much demand to meet it, prices have been lowered in order to get it out the door.
And while the drop in price is good for rec shops, it is not exactly great from the perspective of the cultivators. Some industry insiders are even rumored to be eyeballing a cannabis cultivation exit strategy. Tradiv director of trade, Cecilia Gilboy, shared with MJBizDaily via email, concerns she’s heard regarding the low price of wholesale recreational marijuana, “One business owner told me, ‘When your product is as good as ours and you still can’t sell it, that’s a pretty clear sign it’s time to get the f*** out.’”
But some growers are asserting that much of the average price difference can be attributed to quality. “You can still get around $2,000 for (a pound), if it’s premium…But for mid-grade, it’s right around $1,400-$1,500 a pound. And if it’s low-grade you won’t be able to get more than $1,100-$1,200 for it” says Brett Terry, owner of wholesale marijuana distributor, Sherpa Supply.
So what can be done and how? And does anything need to be done?
One recommendation insiders are bringing up is a modernization of current indoor grows. Outdated lighting setups waste electricity and cause excess money to be spent. But grows that do take the time to update and adopt a more modern approach to lighting growing techniques can experience an increase in yield. That increase in yield, in turn, can positively affect a product’s potential value on the wholesale market.
Additionally, powdery mildew, bugs and pesticide concerns can’t be as well addressed in an indoor grow says Terry, “Any grower that is an indoor facility right now and isn’t able to control the mite issue or the pesticide issue or powdery mildew and isn’t able to put out a top, top product, they’re not able to compete in price.”
There is no lack of opinion on how or why the average recreational wholesale prices for flower has dropped so quickly. But no matter how many or how closely potentials are examined, industry consultant Czarkowski doesn’t believe there is a way to predict any future outcomes. “I’ve been watching these cycles for the past seven years, and I absolutely don’t think things are going to stabilize in just another year or two. There’s always going to be some short-term seasonal stabilization in price, but that’s all we’ve ever had,” he said.