The falling price of legal marijuana is shaking up the dynamics of the marketplace.
“Wholesale marijuana prices declined in 2016 from $2,500 to $1,000 per pound, with some dispensaries offering recreational ounces as low as $65 on CannaSaver.com,” said Brian Shapiro, Chief Executive Officer of CannaSaver. Shapiro said that grow houses flooded the market with cheap marijuana and subsequently drove prices down. Only concentrated cannabis products like oils remained fairly unchanged in pricing.
In Washington state, flower prices plunged from $25 a gram in August of 2015 to approximately $6 currently. In Colorado, the price fell from $8 a gram to just under $6 a gram. This equates to roughly $168 an ounce or $2,688 a pound. Cannabis Benchmarks reported that the average spot price for cannabis in the U.S. fell to $1,486 in December. So far in 2017, overall cannabis prices have risen for the past three weeks, but it is still on average only $1,641 per pound.
Douglas Brown of Contact High Communications said that it wasn’t existing cultivators that tipped the market, but rather new and large entrants to the growing side. “At some point — and we are probably there now — flower becomes a commodity, like soybeans or corn. And then only the biggest players make any money selling it. Margins are thin, but they grow a lot of flower,” he said. Brown pointed to what he called “enormous” grows in Pueblo, CO.
Carter Laren, cofounder of the cannabis incubator group Gateway, said, “When marijuana sells for $750 a pound it starts to become difficult to make a profit. When it gets somewhere below $500 a pound, it becomes impossible.” He believes that growers will turn to agricultural technology in order to drive down the cost of producing a pound of marijuana. The only options are cutting costs or cutting back on production. The industry will have to be abundantly cautious about trying to increase consumption.
Growing marijuana today isn’t as simple as throwing some seeds into the ground. It’s an endeavor that costs millions. Modern grow facilities employ expensive technology to control lights and water. Employees must tag and track the product from seed to sale and owners are usually forced to buy their buildings outright as some landlords don’t like cannabis in their buildings and banks won’t finance mortgages for the end-use.