Cannabis Prices

I used to wonder how it happened every year.  Cannabis buyers would pop into town around harvest time and shop units at a specified price, say 12-14 for outs.  How come 12-14 and how come everyone was asking for more or less the same?  Was it collusion, a mere coincidence, or something else?

Thanks to my curiosity and 20 seconds on Google I stumbled across, a subscription service aggregating sales data from white or regulated markets across the nation.  Data there is presented by state and by grow type – outdoor, greenhouse and indoor.  Quite interestingly market bids approximate the data presented.  White market numbers presented are very close to what we hear and black market numbers are around a third less as they don’t account for taxes or compliance costs.  As I learned in finance, markets are efficient in that they do a good job of sorting out information to arrive at “fair” market prices.  The cannabis market is proving no different, much to the dismay of growers.

Indoor flower comprises most of the market and commands the best price, followed by greenhouse flower, then outdoor.  Interestingly outdoor, or sungrown cannabis, accounts for approximately 20% of sales volume in white markets.  Despite marketing efforts desperately trying to convince market participants about the value of sungrown flower, outdoor prices are plummeting as consumers are becoming more discriminating.  Consistency, visual appeal, flower structure, size, smell and color now dominate the buying landscape.  Most outdoor simply isn’t that good and doesn’t have as much bag appeal as other grow types.

We might not like it, but what many west coast farmers produce simply isn’t that in vogue as extracts, dep and indoor are becoming ever more available.  Consumer demands are changing, fast, and it doesn’t appear that many farmers seem willing or able to adapt.

Wholesale prices have been in a freefall since 2017, with outdoor flower now averaging around $650 a pound in the US spot index, which aggregates data from all regulated states.  Interestingly, because we produce so much weed here in Cali, our prices tend to reflect average US prices to a large degree.

Recent price reports are rather grim.  Outdoor prices have dropped significantly and forward markets show further price deterioration moving into this year’s harvest season.  The west coast seasonal price bump normally experienced is becoming more muted and there is very real concern among less skilled producers that their goose is nearly cooked. 

Given supply gluts in neighboring states, favorable growing conditions the last few years, and commercial entrants into the market, this new ballgame for lower cannabis prices is predicted to continue.  Markets used to clear earlier, with sales picking back up in February after a brief lull in the action.  Last year sales didn’t really get cracking until April, this year perhaps the same or worse.

Distributors are buying wholesale flower on the cheap, in small batches, and on the front…some citing 4 weeks or more for payment.  This is a recipe for disaster for small, less skilled operators.  Producing units at $400 or more and selling them for a taxable amount slightly higher is a recipe for bankruptcy as many are now learning.  Without the ability to break desirable product into smaller sales units as good producers are, many here in Humboldt and surrounding regions are becoming panic stricken and are closing shop.

Because many farmers are actually really bad growers and because many distributors have very shallow markets, the disastrous consequences of this combination are becoming ever apparent to market participants and the local economy.

Lots of people (who thought they were good at their job) now have little money and essentially worthless product they can’t distribute to either market with acceptable volume or velocity.  The few businesspeople farmers I know with true Jedi Knight like skills are still slaying it and will for some time.  The unsung heroes, growers so good they will never risk disruption by going public will still stimulate local economies, but even their robust contributions will pale in comparison to the black hole created by falling cannabis prices and the evisceration of many mom and pop operators and ancillary service providers.

Those shipping product abroad or to other states are also learning about discriminating consumers and flooded markets.  One middle man recently told me in desperation that “there’s fucking weed in the Midwest for god sake!”  I hate to say this, but once black market dealers are complaining (not bullshitting) about business, time’s are certainly tough indeed.

In Oregon, retail bulk week now sells at just a few bucks a gram and dispensaries and farmers are shuttering businesses at alarming rates.  Craft farmers (not really but that’s what they call themselves) are being decimated and astute operators are swooping in and purchasing assets at pennies on the dollar.  It is they who will garner most future profitability if and when the pendulum swings and the supply paradigm shifts back in their favor.

Like to the north, bulk weed will be dirt cheap within another year or two…little debate needed.  Truly specialized product will garner value, but most will never produce anything good enough to meet the cut.  Other profit centers like oil and extracts and processing and distribution will also erode given increased competition and slackening rents.  From there, only the best will survive.

Good luck to all.

Jesse Duncan

Sour Diesel

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