Marijuana Business Factbook 2019

181 © Copyright 2020, Marijuana Business Daily , a division of Anne Holland Ventures Inc. You may NOT copy this Factbook, or make public the data and facts contained herein, in part or in whole. For more copies or editorial permissions, contact CustomerService@MJBizDaily.com or call (720) 213-5992, ext. 1. Chapter 3 The sole purpose of wholesale cultivation is to grow marijuana, which is then sold to retailers, cannabis product manufacturers as flower or trim. In markets that do not allow vertical integration, wholesale cultivators are the base of the marijuana supply chain, providing all of the product that is sold whole or processed further for patients and consumers. WHOLESALE CULTIVATION TRENDS • Perhaps the most significant trend in wholesale marijuana cultivation is declining profitability. A host of economic forces have depressed wholesale prices to the point that cultivators are struggling financially in several recreational markets. Price declines in general can be traced to overproduction ― a result of low barriers to entry creating a competitive environment in which only the highest-quality cannabis flower will be sold on retail shelves. Medical marijuana markets have been buffered from competition and oversupply issues by state-implemented caps on cultivation licenses and/or state-mandated vertical integration. • Despite these somewhat grim economics, wholesale cultivators are largely optimistic about the future. Retail sales in mature adult-use markets have continued to increase year-over-year as consumers enter the legal market, although annual increases are beginning to diminish. State regulators have recognized the plight of wholesale cultivators and proposed plans to decrease oversupply through innovative methods, including craft cannabis sales and potential exports. But such plans need significant buy-in from lawmakers and, in some cases, are unlikely to come to pass in the absence of federal legalization. Attrition is beginning to occur in mature markets, giving hope to cultivators able to ride out the current storm. • Although flower remains the most popular product among consumers in markets where it is allowed, buyers’ preferences are increasingly shifting to concentrates. While growers have traditionally used the extract market as a place to sell excess or lower-quality flower, some growers are now producing specifically for that sector. These growers may benefit from contract agreements that provide a known buyer for several harvests in the future, reducing overall risk and providing a level of certainty to their operations. • As prices decline, resource-intensive indoor growing is becoming increasingly inefficient, especially for recreational markets. Indoor growing can result in higher-quality, consistent flower and multiple harvests each year, but competitive pricing puts cost of production above revenue in many markets. Cultivators have responded by implementing new methods to increase efficiency and bring down production costs, aided by ancillary products companies developing cultivation equipment that requires less energy to operate. Financial & Operational Data: Wholesale Cultivators