Home Business Cannabis Companies Need to Calculate for Falling Prices

Cannabis Companies Need to Calculate for Falling Prices

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It has never been a better time to be a legal cannabis consumer in the United States.

In addition to adult-use cannabis sales currently being allowed in 6 states (Colorado, Washington State, Oregon, Alaska, Nevada, and California) prices are falling like crazy.

An analysis by Cannabis Benchmarks found that legal wholesale cannabis prices fell an average of 13% in 2017 compared to 2016.

Those falling wholesale prices translate to lower prices for consumers, and also translates to a dwindling demand for unregulated cannabis.

But while that may be good news for cannabis consumers, it can spell trouble for cannabis producers and other businesses.

What is causing the falling cannabis prices?

When it comes to falling cannabis prices, ground zero is the state of Oregon. Since October 2017 alone, wholesale cannabis prices have fallen by 40%.

The biggest contributing factor to the dramatic fall in wholesale cannabis prices in Oregon is the ever-growing list of cannabis producers and the massive amount of cannabis that they are putting out into the market.

To date, Oregon has received over 2,000 applications for cannabis production licenses, with almost 1,000 of them being currently active.

To put that into perspective, Colorado has licensed 742 producers, despite Colorado having over 1/3rd as many citizens.

Oregon does not put a cap on producer licenses and more producers are entering the market every year. California also does not currently cap licenses, so a similar situation is likely on the way there in the near future.

Even in states where cannabis licenses are capped producers are becoming more efficient and therefore producing more cannabis.

The basic economic principle of supply and demand is playing out in legal states, with supply outweighing demand which in turn is leading to lower prices.

Oregon currently has more than 3 times as much legal cannabis than consumer demand can support, which is a phenomenon that is likely to occur in other states as the industry continues to expand.

How far will legal adult-use cannabis prices drop?

As low as legal wholesale cannabis prices are right now, prices are still dropping so it’s anyone’s guess as to how cheap cannabis will get in the future.

Media outlets have been quoting the lowest wholesale price for cannabis at $700 per pound (Oregon sungrown).

However, at least one dispensary in Keizer, Oregon is currently selling cannabis at a retail price of $640 per pound (as seen in the featured image), so the actual lowest wholesale price in the United States is even lower than what is being reported.

No one can say for sure how low cannabis prices will get. All that can be determined at this time is that we haven’t seen the bottom yet.

With more producers entering the space, current producers becoming more efficient, and automation becoming more common in the cultivation sector of the space, prices will continue to drop into the foreseeable future.

How can cannabis companies prepare for the future with such low cannabis prices?

Cannabis prices are not as low in some states as they are in states that are home to older adult-use cannabis industries.

Even in Oregon where cannabis prices are the lowest in the nation, some companies are still commanding wholesale prices that are roughly 25% more than the average national wholesale prices.

But the companies that are fetching those prices in Oregon are very rare, and if lowering prices aren’t the norm in certain states yet, just wait, it will occur sooner rather than later.

The profit margins for wholesale cannabis are going to be razor-thin in the future for a vast majority of cannabis companies, just as they are for companies that produce other agricultural products.

Prices for wholesale cannabis are only going to go down in the future, not up. Cannabis companies that calculate for that are going to be much better suited for the future.

Cannabis companies need to plan for the industry that will exist five years from now, and not the industry as it is today. The future of the cannabis industry will involve rock-bottom wholesale prices, guaranteed.

If you are a current cannabis producer or an aspiring one, you need to plan accordingly.

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