One of the most interesting and fastest growing industries at the moment in the US is marijuana. Over the coming years fortunes will be made and lost as many people are entering the new business and hoping to turn enormous profits. Legalization obviously has a huge effect on the growth of companies and with increased legalization across the US companies are eager to climb aboard.
Cheap Weed in Colorado
Colorado was one of the first states to legalize recreational marijuana in 2014, following the passing of Amendment 64 in 2012. Recent data from the Cannabis Benchmarks Research Firm (a market research firm which tracks the commodity across the US) has demonstrated that the lowest average price for marijuana is in Colorado. They are one of the only firms that do this and have transferred the decades of experience of tracking other typical commodities to the marijuana industry, breaking down the transactions by state and type of grow (indoor v outdoor) as well as countless other metrics. According to the company’s mid-year 2017 report, there has been a downward trend in the price of marijuana during the first half of the year, with the biggest decline seen in Colorado. The price is expected to stay stable for the rest of 2017.
In many ways, this is to be expected. An increase in suppliers was always going to result in a decrease in price, particularly as there is so much hype and interest in marijuana. With so many people jumping into the industry and pumping marijuana, the price was only ever going to go in one direction. In California, it is estimated that supply is 8 times demand, in apprehension of the January 2 deadline where recreational stores will open. What is interesting is why Colorado in particular saw the biggest decline. Colorado was the first state to legalize recreational marijuana, and has the most mature marijuana market in the country. The price of weed in Colorado has plunged 40% since last year.
Coming into 2016, Colorado’s wholesale prices were the highest among what the Cannabis Benchmarks Research Firm has dubbed the “Big 4” of California, Colorado, Oregon and Washington. But this has since changed.The report attributes the falling prices in Colorado, now below that seen in any other state, largely to increased supply, fierce competition and the state’s comparatively lax regulatory framework.As a result, prices have been trending downward for the last year and a half after absolutely crashing in July 2016.
Is this Good or Bad News?
It is hard to access whether this news is good or bad. Obviously, it is bad news for growers and distributors, and excellent news for everyday citizens. Arguably, a decline in prices where quality remains the same is excellent, but this all depends on the economic standpoint of the individual. Colorado had for years enjoyed the benefits of being one of the few places where both recreational and medical marijuana was legal, and had a light touch regulatory policy. But in the last two years in particular the US has seen an increase in the supply, notably in Nevada and California, as recreational weed is being legalized (and has been in Nevada). The increase in supply means that people have more options to get their weed and don’t have to go to Colorado anymore. And even within Colorado there has been an increase in the number of cultivators which has dropped the price. The profit margins for growers are already quite thin.
It may well be that Colorado is an indicator of what is yet to happen in other States. It will be interesting to observe what happens in California with so many suppliers to meet much less demand. The other 3 states in big 4 could yet see huge plunges in the price of marijuana. Supply goes up, price goes down.
Other Uncertainties
Then again, there are many other uncertainties surrounding marijuana. As detailed by Cannabis Benchmarks’ mid-year report, the 2016 November election may have “ushered in the Trump regime” and “anti-cannabis zealot Jeff Sessions” for US attorney general, but the election also saw voters in four states approve recreational pot, adding California, Nevada, Massachusetts and Maine to the small list of states that already allow adult-recreational use, namely Colorado, Oregon and Washington.
While uncertainties have plagued the market since legalization took hold, first in Colorado in January 2014 and seven months later in Washington, the report shows a maturing market across the country with retailers learning from previous years and considerably more stability than what the industry saw in the first half of 2016.The report showed that because there’s a patchwork of mixed enforcement across the U.S. and because marijuana remains illegal at the federal level, few wholesalers, especially those in newer markets, want to make large-scale transactions. Also, with the cash nature of the business, where retailers often pay for the pot they sell in cash, retailers aren’t getting the kind of discounts they might see if they bought in bulk.
The research also noted that States which only allowed medical marijuana usage as opposed to recreational marijuana fared a lot better with stable prices. As can be expected. This is always the case with increased regulation and market intervention. People have no choice but to pay the prices of government mandated marijuana. It is far better to let prices fall and let society prosper than to artificially regulate prices and let centralized entities reap huge profit margins at the expense of the many.
