If you’ve been following cannabis over the last decade, you’ve likely seen cannabis prices drop from around $60 an eighth to as little as $25. Thanks to legal cannabis, the prices are now held hostage to the market instead of the shady few who used to control them.
How much cheaper can cannabis go, though? As consumers, we would love for it to drop to next to free, but the farmers growing our cannabis won’t be able to sustain these rock-bottom prices forever.
What determines cannabis prices?
Cannabis prices fall and rise with the demand of the market, but it doesn’t end there. Since cannabis is still federally illegal, the market varies state-by-state. It’s all going to fall on the supply and demand in each particular state.
For instance, in California, their recreational program launched at the beginning of 2018. While they have been a medically legal state for quite some time, growers are having to scramble around to get permits and licenses for their recreational grows. This is causing a bottleneck that the demand is clearly outpacing.
With not enough supply to fulfill this demand, wholesale prices are through the roof compared to places like Colorado and, especially, Oregon. In these more mature markets, they have already been flooded with farmers, venture capital funds and big business that have caused supply to outpace demand.
Price is not only affected by broader state markets, though — the city you buy in has a significant impact as well. These price fluctuations are more determined by taxes imposed on the dispensaries and the growers in their county. Companies can either eat these costs or pass them to the consumers. It would be safe to expect the latter, and it will be up to the voters whether these rates rise, fall or stabilize.
Cannabis price trends
A company called Cannabis Benchmarks tracks the wholesale cost of cannabis across the nation. In a recent report that looked at prices from 2015 through 2017, they revealed just how volatile the markets have been.
At its peak in August of 2015, the wholesale cost per pound was $2,096. It was quickly followed by a short drop to $1,700 before stabilizing at an average of $1,983 during the first half of 2016. This stabilization did not last long before an increase in supply caused prices to bottom out at $1,386.
The newest report has the average wholesale pound dropping to an average of $1,562 for 2017, where it reached new lows and sustained them for the entirety of the fourth quarter. The data show that those prices have started to stabilize once again, but will this last long?
You can assume that prices will be become volatile once again with more and more cannabis programs going online. California’s recreational farmers will start to flood the market with all different types of cannabis, and you can expect this to drive prices national averages down once again.
Should every state expect to see a market like Oregon?
What’s happening in Oregon is very interesting, and anyone that wants to grow cannabis needs to be paying close attention to the state’s market. Currently, it is estimated that Oregon farmers are producing three times more cannabis than demand.
And according to the Oregon Liquor Control Commission, there are 982 active farmers and another 1,007 farms currently in-line to get their license, which means the problem is only going to get worse. Mjbizdaily.com reported in January that wholesale prices have dropped to as low as $50 per pound. That simply isn’t going to keep the lights on for most of these farms.
Not every state has the perfect growing conditions that Oregon does, so this level of oversaturation in the market might not be what everyone should expect. With a lot of savvy entrepreneurs trying to get their piece of the green rush, however, it might not be that far off. If this oversaturation does start to affect tax revenues, then you might start to see lawmakers take measures to address the oversupply.
The bottom line
It will be hard for the market to find a bottom on wholesale prices. Until we have interstate commerce in the cannabis industry, the markets will remain too fragmented. Consumer prices, on the other hand, most likely won’t see the same volatility if dispensary owners take the opportunities to profit off the low wholesale prices.
As farmers work their way through this evolving market, the good ones will be forced to run a profitable farm. The markets will squeeze their margins, but they will innovate and improve their efficiency till they get the most grams per dollar spent that they can. This will cause the prices to fall even more. Heck, maybe one day we will be buying packs of 20 joints for $5!