It comes as no surprise that the legal marijuana industry is growing by the minute. Big investors are creating jobs and entrepreneurs are realizing their dreams of becoming small business owners. But as legal marijuana begins to rise in popularity, growers are beginning to saturate the market, driving down prices. Sounds great right? This week we discuss how lowering legal prices might actually mean trouble for the legal marijuana industry.
According to an independent price-reporting agency in Denver, wholesale marijuana prices are plummeting and show no signs of slowing down any time soon. From $2,100 per pound in September 2015 to around $1,562 in September 2017, Cannabis Benchmarks estimate that after totals are calculated, September 2018 will have shown prices at just under $1,500 per pound.
Consumers were happy to buy marijuana long before legalization was even an issue. Local dealers, despite the charging a premium for being in a, well, risky business, were able to stabilize the market and still keep product relatively inexpensive. This proves the black market was fully able to supply the market while creating competitive pricing amongst each other. So, why are prices dropping so consistently?
While local dealers may have had a handle on their market, U.S. marijuana growers are still in the throes of understanding consumer demand for recreational usage. Initially, when states like Washington and Colorado made recreational marijuana legal, the tourism spike and nostalgic role marijuana had on consumers may have created a false idea of the demand. After the initial novelty drive wore off, oversupply issues began.
It could be fair to say that flagrant overproduction is also to blame for falling prices. Larger growers with an ignorant approach to demand projections are causing a market flood of product that will grant them long-term supply deals with larger retailers. This will allow marijuana prices to fall making it next to impossible for smaller growers and businesses to compete.
While lower marijuana prices may be a win in the short-term for consumers, the lack of competition will begin to draw prices back up eventually. And now that the “little guy” is gone, prices will most-likely become higher for the consumer in the end. How does this happen?
If you’re a big business looking to eliminate your local “mom and pop” dispensaries, it’s in your best interest to slash your prices to undercut your competition. While you may be lowering your margins, your share of sales will offset your loss. This will eventually drive the competition out of business, making you the leader of the market, and able to command any price for your product.
Now, as a consumer, can you see how low marijuana prices might not be such a good thing after all?
One of the simplest ways to help regulate the market is to buy from smaller, independent retailers. Chances are they have the product you are looking for at a reasonable price to begin with. Making sure these retailers can compete with the large-scale companies actually keeps prices in check for the long haul.
Secondly, only buy what you know you will use. While this might sound too simple to be considered a “tip,” remember that over-buying product may create a sense of urgency in the market, causing overproduction. When you make periodic purchases, the market has a better understanding of the appropriate consumer supply and demand. This stability in the industry will ultimately keep the industry profitable for retailers, and easier on your wallet.