Colorado marijuana companies brace for flood of cannabis from outdoor grows

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By Bart Schaneman

With some of the largest licensed outdoor grow facilities in the country, Pueblo County produces a significant amount of Colorado’s wholesale marijuana – and this year’s harvest could be its biggest.

It’s understandable, then, that indoor and greenhouse wholesale growers across Colorado might be worried about a possible flood of product this fall. 

But the state’s growers needn’t necessarily brace for a dip in the price of a pound of cannabis, according to industry insiders.

Analysts say any worry is unwarranted because:

  • Most of the outdoor crop has already been contracted as trim to marijuana-infused product companies and won’t affect the wholesale flower market.
  • Markets are efficient, so Colorado has likely adjusted for the supply infusion and today’s wholesale prices already reflect what will happen in the fall.

“I don’t think the outdoor harvest this year is going to be responsible for much of a shock to the system,” said Jim Parco, an economics and business professor at Colorado College in Colorado Springs as well as owner of Mesa Organics, a cannabis retail business in Pueblo.

“Any forecasted future influences on the price of an asset are automatically reflected in the price of that asset.”

Baked in the cake

Colorado’s large-scale processors have stabilized the market by making plans to buy the supply in bulk in November and December, according to Parco. Those companies will vacuum seal and freeze dry the cannabis and process it for concentrates throughout the year, he added.

Tim Cullen, CEO of Denver-based Colorado Harvest Company, was among those initially concerned about the potentially adverse impact of the Pueblo harvest.

He had heard that massive grow operations like Los Suenos Farms, which has nearly 40 acres of licensed outdoor cultivation space, had “gotten their act together” and are ready to inundate the state with lower-cost cannabis.

He heard “there is a big harvest coming out of Pueblo and it will have an effect on the market,” he said.

But after talking with his contacts in the county, he feels more at ease.

“I really thought (the cultivators) would be out there wheeling and dealing right before the harvest, but their contracts were already tied up and they’d sold everything coming out of their gardens,” Cullen added. “A lot of the flower being grown down there isn’t top-shelf quality for sale as flower, but it would all pass the test to be extracted.”

However, a supply glut could affect the edibles market.

If lower prices for trim reduce the cost for the producer, an infused company could offer edibles at a better price and drive the market.

“You may see edibles prices come down,” Cullen said. “The other choice is that (the company) maintains the same price and enjoys a better margin.”

A downward slide

The price of a pound of marijuana in Colorado has been trending downward consistently since the state’s legal recreational market began in 2012.

But wholesale prices in Colorado really started to decline in spring 2016, said Adam Koh, editorial director at Cannabis Benchmarks, an independent price reporting agency based in Stamford, Connecticut.

Colorado’s lowest monthly Spot Index (composite volume-weighted average price of indoor, greenhouse and outdoor) occurred in November 2016, when Cannabis Benchmarks assessed the state’s cannabis at $1,399 per pound. Koh explained this was in part due to fall harvests but was also the culmination of falling wholesale pricing in Colorado because of general overproduction that began in the spring.

In 2016, the number of all plants in Colorado peaked in September, then decreased directly after that – highlighting the amount of outdoor growing in the state. It’s not uncommon to see prices bottom out around November in western states with more outdoor growing, Koh said.

According to Cannabis Benchmarks data, the monthly Spot Index in Colorado has continued to trend downward through this year.

The index has been below November 2016’s price for all of 2017, and monthly composite rates fell below $1,300 per pound beginning in March this year and haven’t exceeded that threshold since. The downward trend has been fairly gradual, especially compared to last year, Koh said.

Shakeout on the horizon?

While the amount of product might not drop prices as much as feared, Koh expects a tough 2018 for Colorado cultivators as new licensees come online and existing cultivation operations continue to improve and produce more cannabis.

Parco estimates that Pueblo-area growers account for about 40% of the entire production in Colorado, with most of the cannabis they produce consumed in Denver.

Koh believes the early movers still connected to larger indoor cultivation facilities might start to falter unless they’ve carved out a strong market presence with consistent revenue. The smaller indoor grow operations aren’t efficient and cost-effective enough to compete with large-scale greenhouses and outdoor farms.

“At what point does it make more sense to buy product from the wholesale market?” Koh asked.

Before that overproduction comes to fruition, Cullen wonders whether the state Marijuana Enforcement Division (MED) will determine there’s enough supply and stop issuing licenses.

“At some point,” he said, “the MED is going to have to take responsibility for regulating the market and the production so that there is enough meat left on the bone to keep the existing businesses going.”

Bart Schaneman can be reached at