By John Schroyer
The recreational marijuana price drop many in Colorado’s industry have been predicting for over a year has occurred – at least at the wholesale level.
The average price wholesale growers are asking retailers, edibles producers and others to pay for recreational marijuana has tumbled by a third since January.
Blame it on a supply glut.
Industry insiders aren’t sure when the slide will end, suggesting that producers may be in for an extended period of low wholesale prices.
Indoor growers with inefficient, dated equipment may be hit the hardest, according to industry watchers, because they won’t be able to compete on price with more modern cultivators.
According to data from the online wholesale marketplace Cannabase, the average monthly asking price per pound for recreational flower dropped to an average of $1,402 in June from $2,106 in January.
The lowest monthly asking price on the Denver-based site plunged even more, to $750 last month from $1,800 in January.
“We all knew it was coming, because more and more production capacity is coming online,” said Jay Czarkowski, an industry consultant at Boulder-based Canna Advisors. “Medical is hanging in there, but rec is really finally starting to plummet. I’ll use that word – ‘plummet.’ Probably 30% in the last four or five months.”
Average retail marijuana prices, by contrast, appear to have declined only slightly this year in Colorado. That’s good news for retail shops, particularly if they’re able to capitalize on the low wholesale prices and pocket the difference.
Meanwhile, the Cannabase numbers point to relatively stable wholesale prices for medical marijuana. The average asking price for a pound of medical cannabis flower on the site was little changed, at $1,850 in June versus $1,900 in January. The lowest monthly asking prices have even increased, to $1,800 per pound in June from $1,600 in January.
The pricing on the recreational side is an enormous change from late last year, when prices were generally well above $2,000 per pound on the site.
Cannabase is a solid metric for judging where the Colorado wholesale market is at in general, because some 70% of all licensees in the state – cultivators, retailers, edibles makers, etc. – do business through the site. And while those numbers are asking prices as opposed to final sales numbers, they’re still an indicator of the wholesale market’s health.
Jennifer Beck, CEO of Cannabase, agreed with Czarkowski that one of the main drivers of the price tumble on the recreational side is a supply glut.
The number of licensed recreational cultivators has increased by nearly 20% over the past year, to 554 as of June 1 from 465 a year earlier, according to the Colorado Marijuana Enforcement Division
By contrast, the number of medical cultivators has risen by just 3% during that period, to 788 in June versus 764 a year earlier.
“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,” Beck said. “I’m concerned that we’re going to have way too much overproduction.”
The trend has industry insiders like Cecilia Gilboy, the director of trade at Tradiv.com – an online competitor of Cannabase – throwing around words like “alarming.”
“There’s a general sense of concern, if not downright panic,” Gilboy wrote in an email to Marijuana Business Daily. “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.'”
Aside from less growth in the number of cultivators, MMJ prices have remained relatively steady for another reason: Dispensaries are still required to grow at least 70% of the flower that they sell. That requirement reduces the likelihood of overproduction.
On the recreational side, by contrast, cultivators don’t face a production cap and can grow as much product as they want.
“Medical is staying stable because more and more grows have been really just focusing on rec. So the supply is short enough on the medical side that prices for wholesale have remained stable, up in the $1,800 to $2,200 (range), if not even $2,500 for super-top-shelf,” Czarkowski said.
Still, a lot of wholesale pricing depends on the quality of the cannabis for sale, said Brett Terry, owner of Sherpa Supply, a wholesale marijuana distributor in Bailey, Colorado.
“You can still get around $2,000 for (a pound), if it’s premium,” Terry said, referring to recreational flower. “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.”
Industry insiders said it will be more difficult for indoor growers with inefficient, old-school lighting setups that gobble electricity and result in higher costs.
“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,” Terry said.
But that doesn’t mean a lot of growers will fail. They could retool or adjust in other ways to cut costs, Czarkowski said.
“Some folks are getting closer to two or three times the yield” with newer lighting setups and modern growing techniques, he said. That could make a difference when it comes to how much a company can get on the wholesale market and what makes a company viable.
But as for whether wholesale recreational prices will stabilize anytime soon, that’s an open question.
Beck said there are “too many unknowns” to make any solid prediction. Terry predicts recreational prices will rebound by early fall, while Czarkowski was noncommittal.
“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,” Czarkowski said.
John Schroyer can be reached at [email protected]