Legal Cannabis Prices Expected to Drift Lower for 2017
Experts say a combination of factors will continue to pressure legal growers and manufacturers.
While 2016 was a landmark year for America’s national marijuana legalization movement, it also saw a significant drop in wholesale cannabis prices.
And industry observers say that decline in prices is expected to continue well into 2017, if not longer.
In its latest report Cannabis Benchmarks, an independent price reporting agency, said the national average price for a pound of legal cannabis flower, volume weighted, was $1,649. In comparison that same pound would have cost somewhere between $1,900 and $2,000 this time last year.
Adam Koh, the company’s Editorial Director, says that while current cannabis price levels have been holding relatively steady since last year’s declines, Cannabis Benchmarks expects those prices to drift lower this summer; to perhaps as low as $1,100 or $1,200 per pound in Colorado, one of the most established legal marijuana markets.
Those wholesale price drops, he says, are in part a continuation of the legal marijuana industry’s so-called “green rush” – where new players are coming into the sector and flooding the market with new product; which is in turn squeezing out the smaller growers, cultivators and manufacturers.
“The tax burdens and the cost of compliance (with state regulations) are pretty high and it can definitely be difficult for smaller operators,” Koh tells the Blunt Network.
But the industry, he says, is also going through some changes in the ways it cultivates its cannabis. In Colorado, Washington State and elsewhere, he notes that a lot of the early entrants to the legal cannabis sector remain “married” to their large indoor cultivation facilities; facilities with high energy costs and which are less financially efficient than outdoor farms and greenhouses.
“So the falling prices, especially in Colorado with its vertical integration requirement from the outset of legalization, affect those growers much more greatly than they would an outdoor greenhouse grower that’s able to eliminate the energy costs,” he adds.
According to Tom Adams, the editor in chief of Arcview Market Research, this current cannabis price drop appears to conform to models that his group has seen before, as marijuana legalization becomes more commonplace in the U.S.
“There is some indication that when a market first goes adult legal, the demand jumps so stratospherically from a very limited medical market situation,” he tells the Blunt Network. “But it’s a very short-term phenomenon, because of the laws of supply and demand.”
With more than half the U.S. having some form of legal marijuana following the November elections, and the lack of any federal oversight or regulation, Adams expects cannabis prices will only move downward.
“It’s just going to be a donnybrook from here,” he says. “Every state takes a separate approach to the process of legalizing; and each of those decision points in state capitals is having an impact on either/or both supply and demand, and therefore the markets are going to be as fluid as they have ever been.”
There’s also the political uncertainty surrounding whether the Trump Administration will clamp down on legal cannabis. However, Koh says, his industry contacts say that people are going about their business as usual.
“There’s not much that any business can do, day to day,” he says. “For most part people are just putting their heads down and continuing to work as they would. If that shoe does drop, they’ll deal with it then.”
All this uncertainty, however, has apparently not discouraged more people from entering the legal cannabis sector.
“We are still seeing new companies popping up every minute in this industry,” says Arcview’s Tom Adams. “So we’re far from a shakeout at this point, but it’s inevitable.”
Adams expects those who emerge on top of the cannabis heap will be well-capitalized innovators coming from other agricultural fields or, as he says, the “guys experienced in growing other things cheaply and efficiently.”
Koh has a similar assessment.
“Times are tight for some of these businesses and it’s going to get tighter as the prices fall,” he says. “And we will see some – especially in Colorado and some other states – we will see a changing supply landscape.”
Those changing supply dynamics, according to Koh, will also end up altering the legal cannabis industry’s business models.
“What worked in the past, just a few years ago when prices were $3,500-$4,000 a pound in Colorado; the business models that were successful then won’t work now, when prices are a third of those we were seeing just three, four years ago.”