Chart: More growers, lower wholesale prices in Colorado’s recreational marijuana market

By Eli McVey

The Average Market Rate (AMR) for a pound of wholesale marijuana in Colorado’s recreational market has hit an all-time low, pushed down by the continuous flow of new cultivation facilities coming online, increased efficiency among existing growers and a rising number of outdoor grow operations.

Moreover, the market forces working to push wholesale marijuana prices lower show no sign of abating, a prospect likely to further squeeze growers’ margins.

Used by the Colorado Department of Revenue to levy excise taxes, the AMR is determined twice a year based on the average price of all retail marijuana sold or transferred from cultivators to retailers and infused product manufacturers.

The latest calculations – based on transactions from Nov. 1, 2016 through April 30, 2017 – puts the AMR at $1,298 per pound, down 12% from January 2017 and 35% from its peak in January 2015.

Meanwhile, the number of cultivation licenses in the state continues to climb. Since January 2016, 176 new cultivation operations have come online, which equates to a 10% increase every six months.

Shon Williams, director of program management and design at MJardin, a Denver consultancy specializing in cannabis cultivation, believes that new growers are continuing to enter Colorado’s market.

But he noted that much of the growth in cultivation licenses stems from existing businesses expanding their capacity and adding more cultivation facilities – versus new companies being launched.

Expansion among some of the larger, more sophisticated players in Colorado’s adult-use market would tend to place downward pressure on the average price of wholesale cannabis. These operators are able to produce high volumes of flower at a relatively low cost – giving them the flexibility to accept lower prices while staying profitable.

Williams also pointed to the growing number of outdoor cultivators in Colorado’s rec market as a significant contributor to falling wholesale prices.

“I think we’re seeing a growth of outdoor (grows), which is going to start driving costs down even more, and that’s pretty new,” Williams said. “There’s certainly a need for that to mature, but it’s a cheaper grow technique and as you get better at it and get better quality it’s hard to compete with outdoor on price.”

With the growing commoditization of marijuana, a cultivators’ ability to compete on price is paramount to success.

That’s a major boon for outdoor growers, which can capitalize on the fact many consumers are unable to distinguish between flower that’s grown outdoors, indoors or in a greenhouse.

“Outdoor is getting higher quality in Colorado, but it still generally sells at a lower price point. But it doesn’t matter as much, because you’re cost of production is a lot less on outdoor,” Williams said. “Any of the stuff that has good shelf appeal can be sold as flower; the rest of the flower can be sent elsewhere, like dried product for extracts.”

Though most concentrates and edibles are produced with trim – which Colorado provides a separate, biannual AMR calculation for – some infused product companies are using whole flower in the manufacturing process.

Looking forward, Williams predicted the growth in new cultivation licenses will begin to stagnate. But he added that no one can foresee when that growth will slow – or how much wholesale prices will need to fall to trigger a slowdown.

Eli McVey can be reached at [email protected]

6 comments on “Chart: More growers, lower wholesale prices in Colorado’s recreational marijuana market
  1. Ken Loritz on

    I see this in my Cooljarz packaging business. We now outsell China with our jars, containers and bottles that we make here in USA. My Colorado customers ask me everyday if I have a low cost option due to the commoditization of marijuana and wholesale cost they are seeing today. This is just starting to get interesting being a US manufacturer of the marijuana packaging bottles. Even the cheap packaging from China is too costly. Go USA. Are we having fun yet?

    Reply
  2. George Buzzetti on

    At the peak top quality in California was $4,400/lb. I am 70 and have seen it all and smoked the best from around the world. They have purposefully taken out the length of the high as a commercial decision. Corporations in a world of consumer use do not want you taking a hit every two hours they want ever 15 minutes. So engineer in the taste and smell and take out the length of the high.

    I have seeds from 20-40 years ago from those strains. What a difference to the best out there now. Joke time to me and what we smoke not from the present corporate game. Quality was the game now as in Nazi Fascist Amerikka it is profit at the expense of the public for a very few like those whose personal wealth grew by over $10 billion in one year. No one is that good except through using governments by buying and selling them for so cheap to their wealth it is funny how easy it is and since this is the fasting growing business here and in the world what do you think they are going to do?

    Reply
  3. Morgan Glenn on

    I can easily tell the difference between outdoor, greenhouse, light assisted greenhouse and indoor. In Oregon we like quality and nothing beats the best soil grown, organic indoor.

    Reply
  4. Hastings RH on

    Lots of mid grade outdoor for 800-1200 an lb here in Cali but if you want quality it’s 2000-2400 and up an lb wholesale. 2200 is a good average for quality flowers plus you can add another 200 an lb for shake and booger buds.

    Sure would be nice if retailers could sell quality flowers

    Reply
    • M W on

      That is about all it is worth if it is only average. Quality outdoor should go for about 800, and quality light assisted/deprevation greenhouse bud should go for 1200. I dont see the prices falling much below that in the next couple of years though.

      Reply

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