By Becky Olson
The cannabis industry is rife with uncertainty, and wholesale marijuana prices are no exception.
The national weighted average price of a gram of marijuana sold at the wholesale level fluctuated by 21% between May and mid-September, according to an index developed by Cannabis Benchmarks.
Wholesale price movements can be even more pronounced in individual markets, with volatility ranging from a 23% decrease in Oregon between mid-June and mid-July to a 21% increase in Washington DC within a single week last month.
The national figures reflect trends in states that have legalized medical or recreational marijuana and have operating cannabis businesses. They also take into account the number of transactions conducted at specific price points, which provides a more representative statistic than the simple average.
Sizable swings in wholesale cannabis prices can stem from a multitude of factors, most notably competitive forces, supply vs. demand issues and the growth – or stagnation – of a state’s marijuana industry. Other factors that influence wholesale prices include cultivation method, grade of the marijuana, vertical integration requirements and whether a state has legalized recreational cannabis in addition to MMJ.
While wholesale marijuana prices moved upward in general from a national perspective this summer, average prices vary widely across individual states tracked by Cannabis Benchmarks.
For example, in the two states with operational recreational marijuana stores – Washington and Colorado – wholesale prices are currently around $4.06 and $4.50 per gram, respectively. That’s much much lower than in Minnesota – one of the country’s most recent MMJ states to get dispensaries up and running – where wholesale grams currently sell for as much as $6.50.
Regardless of the reasons, price fluctuations in the core commodity around which the entire industry is built can present challenges for marijuana businesses.
Developing budgets and making purchasing decisions can prove quite difficult given the high degree of uncertainty over which direction – and how much – wholesale prices will move, according to Phil Seda, head of sales and distribution at Sky High Gardens in Seattle.
Major issues with supply and demand drove up prices in Washington State in the summer of 2014 when recreational sales first began. But the market has settled down, and prices have plummeted from those highs by around 50%.
“As more growers went through the process (of setting up operations), went through harvests, supply eventually came in line with demand and prices fell. Now I’m less concerned about the risk of major price changes and feel like we’ve really hit a stride. The average wholesale cost of a gram (last summer) was around $7, now it’s around $4.50,” Seda said.
The trend of maturing markets driving prices down and reducing volatility holds true even in loosely regulated states such as Michigan – where, similar to California, dispensaries operate in a murky legal area.
Wholesale prices in Michigan have definitely decreased in the past few years, according to a dispensary owner who asked to remain unnamed because of the tenuous legal situation for MMJ businesses in the state. Wholesale cost for ounces has decreased from around $300-$350 a few years ago to about $225 currently, the owner said.
Reasons for that trend are similar to those in Washington State: As growers have refined their practice and the market has matured, supply has increased and businesses have generally recouped their startup costs, allowing them to ease up on prices.
The takeaway for marijuana businesses around the country is that while marijuana prices will continue to be volatile due to the unique obstacles the industry faces, the overall price arc hits a downward trajectory as markets mature and find equilibrium.
Becky Olson can be reached at [email protected]