California wholesale cannabis prices rebound from slump

Image of an Autumn Brands greenhouse

California cannabis growers such as Autumn Brands - a greenhouse cultivator, above, in Santa Barbara County - are experiencing an uptick in wholesale prices. (Photo by John Schroyer)

A bear run in California’s volatile wholesale cannabis market appears to be over.

The price of bulk flower – which hit rock bottom in November and squeezed growers financially – is starting to rebound amid an uptick in sales, according to several operators who told MJBizDaily they closed the books last month on a high note.

A wholesale turnaround would be welcome news for thousands of growers across the state, from craft producers in the Emerald Triangle to some of the nation’s largest cultivators in Santa Barbara County.

The price plunge began nearly a year ago.

In addition to falling prices, many growers have been struggling because of a thriving underground market, high taxes and a limited number of retail outlets for their product, according to industry officials,

Santa Barbara County-based grower Autumn Shelton said several farmers in her network began seeing a modest rise in wholesale pricing at the beginning of January, in line with traditional seasonal spikes after big outdoor harvests that flood the market in October and November and depress prices at the end of the year.

“It’s good to see us back in that same cyclical increase,” said Shelton, the owner of Autumn Brands.

Shelton, who also serves as president of the Cannabis Association for Responsible Producers, or CARP Growers, said prices are trending upward as product availability diminishes.

“We’re definitely seeing there’s more demand again,” she said. “It will be interesting to see how much it really does climb.”

Highs and lows

The average price per pound of cannabis flower is up to about $750 to $1,100 for quality, big buds and $300-$450 for smalls, according to Shelton.

That’s a nice bump from November, when prices bottomed out at roughly $400 per pound for AAA-grade flower amid a glut of marijuana, according to Devin Calloway, founder and president of Eco Farm Holdings/Thrive Society, a wholesale service provider in Santa Rosa.

Thrive Society’s internal tracking system, which culls sales and volume data from more than 400 farms and 200 buyers, indicates wholesale prices began plummeting in March 2021.

By November, the value of top-grade flower had collapsed more than 65% from its high of about $1,250 per pound in August 2020, the steepest drop in wholesale commodity cannabis pricing since the regulated market was established in January 2018, according to Thrive Society’s analysis.

Business leaders need reliable industry data and in-depth analysis to make smart investments and informed decisions in these uncertain economic times.

Order your 2022 MJBiz Factbook, out now!

Featured Inside:
  • 200+ pages and 50 charts with key data points
  • State-by-state guide to regulations, taxes & opportunities
  • Segmented research reports for the marijuana + hemp industries
  • Accurate financial forecasts + investment trends

 

Stay ahead of the curve and avoid costly missteps in the rapidly evolving cannabis industry.

Thrive Society, which has 20-plus acres of cultivation under contract, experienced a 300% sales volume increase in January and a 15%-20% jump in price per pound compared to December, according to Calloway.

“We’re seeing an increase in pricing and uptick in sales, which is very promising entering the new year,” he said.

“Consumer demand is driving higher-quality product.”

Across the state, the cannabis wholesale market has “opened a little bit,” said craft grower Jeff Ghidella, the owner of Little Hill Cultivators in Trinity County.

Ghidella’s top-grade, greenhouse flower sold out in January at about $700 per pound, up from a historic low of about $550 in the fall.

Though that price is toward the lower end of the wholesale market, it’s still an improvement, he said.

“It helps having high quality to get your weed sold but not necessarily for a great price,” Ghidella said.

“The problem is this flood of mids we have pulls the price down on the good stuff.”

Ghidella contends an oversaturation of outdoor, midgrade bulk flower continues to suppress the value of top-tier product throughout California.

Ghidella is focusing his efforts on producing top-notch buds this year.

“That’s what got me by last year,” he said. “The only way to survive at this point is to produce a higher quality.”

Recovery varies

But the rebound hasn’t been the same for every farmer, noted Sequoyah Hudson, the CEO of Humboldt County-based cultivator Humboldt Sun Growers Guild.

Hudson told MJBizDaily via email that her company has experienced a minor increase in wholesale pricing, up to $250-$500 per pound for outdoor-grown flower, up from lows of $150-$250 per pound in November and December.

That moderate hike, Hudson said, still has some farmers opting to destroy their crops instead of paying state cultivation taxes, which can cost farmers more than they make from selling wholesale at rock-bottom prices.

But, Hudson said, “there is definitely demand building – fairly aggressively” in the wholesale market – particularly for trim and biomass, as Humboldt Sun has experienced an “uptick in inquiries,” particularly from Southern California buyers.

Pendulum swinging

It’s important to note that 2020 was an outlier in many respects, considering the industry benefited economically during the first wave of COVID-19 outbreaks.

Not only were California cannabis businesses deemed essential by Gov. Gavin Newsom at the outset of the pandemic, but the vast societal changes ushered in by the pandemic – rolling lockdowns, the abrupt labor shift to remote work and billions of dollars funneled to consumers through federal stimulus programs – also propped up the cannabis market, likely inflating wholesale prices.

“That was a unicorn year,” Autumn Brands’ Shelton said. “There was way more demand, dispensary sales were way up, and prices per pound skyrocketed.

“You really have to compare things to 2019.”

The pendulum, according to industry sources, swung back wildly last year amid an influx of product, the wind-down of federal stimulus packages and lockdown orders as well as operators holding on to product far too long, waiting for a bounce back that never materialized – until now.

Some businesses, such as Chula Vista-based vape cartridge maker Helmand Valley Growers Co., benefited from flower depreciation as it reduced direct manufacturing costs and helped position the company to offer lower wholesale prices to dispensaries.

Helmand Valley CEO Bryan Buckley considers the ebbs and flows of cultivation just another cost of doing business in the world’s largest marijuana market.

“Sometimes they’re the hammer and we’re the nail, and sometimes we’re the hammer and they’re the nail,” Buckley said of marijuana farmers.

“Things will start balancing out. The market is starting to bounce back.

“You have to storm these rough waters.”

Good news

Hundreds, if not thousands, of cannabis farmers entered 2022 on precarious ground after a horrendous year in the marketplace, besieged with thousands of pounds of oversupply, high taxation, thriving unlicensed competition and lingering economic woes fueled by the pandemic, supply-chain disruptions, inflation and labor shortages.

“This isn’t just small craft cultivators that are struggling. Midsized and well-capitalized, large-scale brands are struggling, too,” said Jocelyn Sheltraw, director of industry relations at Seattle-based cannabis data provider Headset and a board member of the California Cannabis Industry Association.

Sheltraw said industrywide sales slumps coupled with high compliance costs, limited retail outlets and a booming underground market created an unstable and often unprofitable marketplace, “which is why we’re seeing so many people and companies in California struggle and be vocal about it.”

Now that wholesale prices are starting to rebound, executives are feeling optimistic.

But they’re also still hedging their bets.

Carpinteria-based Pacific Stone, one of the largest growers in the state and a CARP member, has seen wholesale prices increase modestly over the past four to eight weeks.

“There is a little bit better stability certainly then there was in Q3 and Q4,” CEO Skip Motsenbocker said of the third and fourth quarters.

But he’s not ready to call it a comeback, given the vast questions surrounding the sustainability of countless cultivators across the state and their production levels this year.

“Looking at what that brings for Q2 or Q3,” Motsenbocker said, “I think it’s tough to predict right now.”

Chris Casacchia can be reached at ccasacchia@hotmail.com.