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Holy smokes! Weed drops to record low prices despite record high inflation

Legal cannabis is still subject to the same inflationary pressures as everything else, forcing many state markets into offering customers heavy markdowns.

DENVER (CN) — Friday afternoon is unusually slow at Dank Recreational and Medical Dispensary in Denver, giving manager Jake Heim time to talk between ID checks.

“We’re seeing less traffic and purchase amounts are going down,” he said. “People don’t have disposable income, so even our medical customers are dialing down to what they really need.”

Dank opened in 2009 as Colorado’s 13th legal dispensary. In his eight years on the job, Heim said he’s never seen the market like this.

In July, price per pound of flower fell to $709 in Colorado, the lowest since the state revenue department started reporting prices in 2014. That’s nearly half of what it cost to get high in 2020.

The trend is not just burning through Colorado but appears across legal markets from California to Massachusetts. Data firm Cannabis Benchmarks reports the national average dropped $21 in July to $1,333 per pound, on a trajectory anticipated to remain low through the end of the year.

While the price decrease might seem positive for consumers paying more for groceriesgas and rent, economists say the cannabis market is stuck between inflation trends on the business end and a decreased demand on the party front.

“Just because the price of wholesale cannabis is declining, that does not mean cannabis is inflation-proof,” said Andrew Livingston, director of economics and research at the law firm Vicente Sederberg. “What it means is that there are other factors outweighing the pressures of inflation, and that makes it even harder for cannabis businesses because they are being squeezed from both sides.”

Business costs have increased, from the sugar and gelatin in THC-infused gummies to the price of packaging and transportation. On top of that, consumers have less disposable income to spend at the sales counter.

“As prices of commodities across the country increase, consumers are cutting back on spending that is seen as not necessarily essential,” Livingston explained. “That includes recreational purchases like cannabis for those who are not medical cannabis patients, because people have to spend more of their pocketbook on other goods.”

Disruptions in the global supply chain from the Covid-19 pandemic and the Russia-Ukraine War are driving up costs in the U.S. and abroad. Still, the impact on each state is different.

“Instead of thinking about a national market for cannabis, we're thinking about the Colorado market for cannabis or the California market for cannabis,” said Zoë Plakias, an assistant professor of agricultural, environmental and development economics at Ohio State University. “That means that supply and demand are the most relevant factors for what's happening in each state.”

Mature cannabis markets have higher numbers of experienced cultivators producing more cannabis than people are buying. States that have recently legalized marijuana are more likely to see new demand.

“The cannabis market is so unique,” Plakias said. “If restrictions on the sale of cannabis were lifted, if cannabis was legalized at the federal level, and we saw trade across states, I think we'd see cannabis look much more like other types of markets.”

In each state, marijuana is highly regulated with expensive licensing fees, making it challenging for small businesses to plant roots and grow.

“I've got the moms and pops as clients and they can't afford the types of marketing that the other big guys can do,” said Josh Whitaker, the CEO for marketing firm Fully Amplified. “My guys are already doing amazing customer service, trying to keep loyal customers.”

Whitaker said small businesses must offer unique products or experiences to survive.

“Flower prices are dropping because more people are growing, it's cheaper to grow, we're getting better technological advances, and massive companies are coming in and building massive grows,” he said. “The mom-and-pop businesses need to either grow concierge type marijuana or they need to have their own unique strains.”

But the grass isn’t necessarily greener for larger companies.

“We have a lot of experience in a lot of different places, and so yes, we are certainly able to make broader adjustments,” said Adam Goers, the senior vice president of corporate affairs for Columbia Care, a cannabis operator working in more than a dozen states.

“What I think is a little bit different for us from the mom and pop is that the mom and pop is exposed to one area, and we're seeing sales growth in places like New Jersey where they've just begun adult use sales and we’re seeing growth in the medical program in in Virginia,” Goers said. “That can help soften the blow from places like California and Colorado where markets have softened.”

Goers pointed out that all cannabis businesses, regardless of size or status, are constrained by federal regulations.

“Certainly, inflation and current economic constraints are impacting companies big and small, but what is really hurting this industry is the fact that the federal and state governments conflict on how to treat cannabis,” Goers said.

Under federal law, marijuana remains a banned Schedule II substance, illegal to transfer over state lines, risky for banks to interact with and ineligible for federal aid.

“Hopefully 10 years from now we won't be siloed financially,” said Tristan Watkins, program manager for Colorado’s Cannabis Business Office. Under the Office of Economic Development and International Trade, the agency provides support for social equity license holders, including individuals previously barred from working in the cannabis industry due to low income or prior marijuana convictions.

Even though Colorado uses its economic development office to access federal grant money, the Cannabis Business Office can only draw from local funds.

Despite the challenges, Watkins sees an opportunity for innovation.

“Recently, new license types in the way of hospitality and delivery were just brought on board. These are very unexplored territories at least in Colorado,” Watkins said. “That can provide an entirely new avenue for revenue generation, bringing new products and services to consumers, and the opportunity to create more novel or innovative business ideas.”

After all, nothing drives innovation like competition.

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