Chart of the Week: Recreational Cannabis Surplus in WA Squeezing Growers

By Becky Olson

A big shakeout is materializing in Washington State’s recreational cannabis industry as businesses struggle to determine the ideal balance between supply and demand.

From July 2014 through November 2015, licensed growers produced about 16,000 more pounds of marijuana than the amount retail stores sold, according to state data.

That surplus equates to roughly two months of supply for the market, based on average cannabis sales through recreational shops recently.

Since the rec industry launched in mid-2014, Washington’s newly licensed cultivators have produced more marijuana than rec shops sold every single month. The cumulative production surplus stood at 850 pounds just three months after the first rec store opened – which equated to 2.5 months of supply – and has soared since then.

A growing surplus for an entire market, not just an individual producer, can signal some big problems.

In Washington, scores of cultivation companies have gone out of business in large part because of the oversupply issue, said Christopher Macaluso, a longtime cultivator in California who co-founded Canna Group, which provides consulting to cultivators in the northwest states.

Producers are now sitting on a substantial amount of surplus inventory, and the future of many of them is in jeopardy. Some could try to unload low-quality inventory at fire-sale prices, flooding the market and exerting artificial downward pressure on the broader wholesale price.

“If I was sitting on a surplus beyond a month and a half, I’d need to take a look in the mirror and either get more in tune with producing a higher-quality product, or I’d be taking a more business or corporate savvy approach to how I was pricing my product, looking at this from a long term play rather than a short term here and now,” Macaluso said.

To be sure, the market saw higher levels of supply when compared to demand in the early days of the state’s rec industry. In November 2014, for instance, the market had 3.5 months’ worth of excess product.

Supply is now more in line with demand, with the surplus currently running about 1.7 to 2 months.

But the absolute cumulative surplus nevertheless continues to grow.

“A lot of people really got into this for the money, with sort of hungry eyes, and aren’t able to produce the results that consumers, let alone the retailers, are looking for,” Macaluso said.

This type of tumult is to be expected in large markets with a high number of producers, and Washington’s market will eventually find equilibrium and settle down. In the meantime, however, producers, processors and retailers will continue to face a high degree of uncertainty as the shakeout continues.

Becky Olson can be reached at [email protected]

7 comments on “Chart of the Week: Recreational Cannabis Surplus in WA Squeezing Growers
  1. Black Dog on

    I call it the year of blood in the streets….and any of us could easily be eviscerated or shocked to be left standing 1 year from today. My estimates from LCB info indicates up to 1,500 +/- producers have gone out of business, many since this summer when there were 2,500 aspiring applicants and more than 850 producer processors, today many of those applicants are approved yet we only have over 550 plus only 1,400 +/- not so aspiring applicants left…where did they go?

    As about the 30th prod/proc approved in Wa we face high competition, heavy costs, enormous obstacles, burdensome regulations, little operation control,  and a distant glimpse into the horizon for any profit margins, what could be more challenging?  

    Oh, I suppose the created upside down market ratio of about 6 growers to every retail store further complicates matters.  There are only about 165 fully open retail stores.   My analogy for surviving this business is like driving 100 mph, blind folded, on an icy, curvy mountain road and hoping not to crash!

    This year will surely separate the majority who claim to “grow the best marijuana”  from a few more humble farmers such as myself, who have never made such unsubstantiated braggadocio claims. The fact is man cannot replicate nor improve upon nature.
    Prior to I502 regulation the only cannabis comparisons were illegal  “closet”  grown miniscule plants enduring a consistent environment chemically assaulted with pesticides, fungicides, and other garbage to push flower growth, or the other option was infrequently attended, insufficiently nurtured, illegal outdoor operations….so with those measurements the closet cannabis looked prettier and got people stoned….while the outdoor weed got people high but didn’t look as nice.
    So today, the closets have grown to 30,000 sq ft multi million dollar facilities, still with consistent, contrary to nature environments, still bombarded with hazardous chemicals being forced to complete with the best nature has to offer at a fraction of the cost.  Oh by the way, pesticide testing is on the agenda for this year…I welcome it for every lot! On this rough first Cannabis Wagon Train west I vowed to adhere to my Wagon Train LCB Handlers guidance and my goal continues to be to produce the best possible, healthful plant which can be ingested, topically applied or inhaled without toxic consequences and do so at the least expense….everything else will take care of itself. The question is when? I survive because my costs are trimmed, I work 16/7 & own my own property, it’s still a killer!

  2. Joe Santucci on

    The factor that this article forgets to mention is the key to the whole situation. There is no issue with demand for cannabis. There is however a limit for the demand for cannabis that has an effective tax rate of 47% at a state level and far more after factoring in federal taxes. In our recreational market, after taxes, the recreational customer is almost always seeing products that are marked up 3x their wholesale rate. The demand is all there, we just have a black market that has no risk, no absurd compliance costs for. They are advertising, they have quality product and people who prefer to be able to smell and try before they buy. The recreational stores are competing against with a force that has no rules and they’re struggling. Our state needs to take a look around and realize the mess that they have created, also a look at OR and CO. #CommonSense

  3. Dan Anglin on

    This surplus is because of the decision to prohibit certain edibles products in Washington. Consumers don’t have enough of a choice in the state for edibles based on the vague and broad decision by the WSLCB to ban certain candy products in the market, which means that barely any real processing (extraction into decarboxylated oils for edibles) is being conducted in Washington compared to places like Colorado. Other states following their lead will suffer this same fate. The desire to cater to the whims of the minority prohibitionists will continue to create a market for illegal products and create surplus like Washington is currently facing. There aren’t enough combustible consumers to support the amounts being grown if the oil market is held back through these types of knee-jerk decision. Oregon should take note and not fall into the trap of banning edible products or hydrocarbon extractions or they too will suffer low prices and surplus of raw materials.

  4. AC Braddock on

    Lets not forget that the LCB licensed retail stores BEFORE growers from the get go. Can you imagine the logic there? So before there was a surplus, there was a shortage! Growers were calling the shots on pricing. Boing! Growers grew more. Next boomerang effect from rules was the number of retail stores is severely limited. So, when retail did open there were not enough of them and many have still not been able to open due to continued rule changes and the inevitable moratoriums in a new market. They have now realized they did not allow enough retail and have opened licensing applications again. These are Rules and Regs pains NOT market indicators. Washington is a historically sophisticated Herb and OIL market that is being stifled by politics not demand. Then theres this…no legal medical market and heavy taxation on Adult Use. Can you imagine how that is skewing the numbers of the “market”? Dan, Joe and Black Dog above fill in other components of the real story here.

  5. yeah on

    for sure the market will reach an equilibrium. But why is there no talk about the retailers? There isn’t enough of them and the ones that are in business think 100% margins on a product they didn’t grow, didn’t process and have not risk in selling is reasonable. The retailers are playing dirty dirty games to manipulate the market and have always wanted to be the “gate keepers” of the industry. The market needs competition at every level for it to work properly

    • Edog on

      The wild wild west……Clean, pesticide free, super flushed product that is grown with love will win. Don’t let the rat race get you down. Choose to grow your best. Breeding new exclusive strains. Come up with new extraction methods. We all have a great opportunity to make good money.

      Keep your heads up Washington we have some of the best in the world.

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