The Skywalker is falling! The Skywalker is falling! Yep, pot is getting cheap. According to Forbes, we can all breathe a little easier (and breathe life back into our checkbooks as well). Pot prices are failing in the legal market. In 2016, they fell drastically – from 2,500 dollars per pound to 1,000 dollars per pound.
This has influenced the cost of cannabis across the board, with the exception of oils – in staying true to their innate slipperiness, their pricing has remained essentially stable.
Recreational users love this news, naturally: in Washington, flower prices are a fraction of what they were. In Colorado, the price fall isn’t as drastic but it’s still on a downward slope. Overall, per Cannabis Benchmarks, the average spot price for marijuana in the United States fell to 1,486 dollars per pound at the end of 2016. It’s risen a bit this year, it’s back up to 1,641 dollars per pound, but it continues to be much lower than it was.
But why is this? Pot is gaining in popularity – the Austin Chronicle reports that more Americans are in favor of legalizing pot than against it. And this is reflected in its use:
Weed is making a frequent appearance in all demographics, from college students to golden-agers, from those who use it in social settings to those who use it to manage social anxiety
With marijuana in so much demand, one would think that the prices would be skyrocketing – that’s often the case when it comes to the housing market or the faddish Christmas toy. Yet, when this high demand is met (both a literal and figurative high demand) or exceeded, the prices can’t help but drop.
New Blood and New Business
If the market was full of the original cultivators, the demand mentioned above would certainly drive prices to the ceiling instead of towards the basement. But the market is full of the OG’s as well as new blood – it’s saturated with growers. And that saturation is just getting started. Cannabis is a big business and everybody wants a piece of the pie…..unless they’ve smoked a joint, then they want several pieces and also some milk.
There so many growers that some people suspect marijuana will become a market dominated by the largest growers only, the way corn is
This isn’t good news for people in the greenhouse, but growers aren’t limited to growing – they can breed their own strains. That opens another path to profit.
Branding is also an option – aligning with a well-known brand (such as Willie’s Reserve) or becoming a well-known brand gives growers the chance to sell their marijuana at higher prices. Consumers will shell out cash for brands they trust – this is why Pepsi can get away with charging more than generic cola.
Of course, growing in your bedroom closet no longer fits the bill. Today’s grow houses are facilities filled with uber expensive technology that controls water and lights to a precise degree. In other words, growers have invested and this investment is enough to leave them hanging around in one way or another.
Supply and Demand
It’s hard to discuss economics without mentioning supply and demand. In the cannabis industry, there is too much supply. There’s a ton of demand, too, but the supply involves a surplus even though Mary Jane is the girl everyone wants to ask to the dance. Production of marijuana is simply faster than consumption.
In Colorado, recreational users experienced the opposite when legal dispensaries first opened. Only a handful existed and their prices reflected that – people were willing to spend more dough for dope rather than drive an extra twenty or thirty minutes to save a few dollars. This wasn’t lost on the people who worked at the dispensaries as some openly rued their high prices, wishing for competition that would force them to sell at a lower rate.
They got their wish and then some. It’s not to the benefit of the business owner, but it certainly is to the consumer.
It’s Taxing on Tax Revenue
It’s strange to think that the state government actually wants people buying weed, but when it comes to taxes, that’s exactly what they want: more cannabis sales means more revenue. And this fall in prices hits Uncle Sam in the pocketbook, a light tap when considering taxes overall but one hard enough that it has his attention.
Some states have moved to prevent this sort of thing from impacting their taxation too much. Alaska opted for a tax system that is volume-based, a system that minimizes the risks of the marketplace. California does it a little differently – they tax the growers and the sales. This offers some protection in the event demand is high, but cost continues to stay low. It protects them halfway, essentially.
But Colorado, a state that taxes solely on sales, may really feel the burn: per The Cannabist, the cost of marijuana has dropped 24.5 percent, a drop that translates to a 24.5 percent drop in tax revenue as well. There’s no doubt about it, the government is missing out on a huge chunk of change. Does this mean they’ll start a “Just Say Yes” campaign? You never know.
Cannabis is an industry that doesn’t need to advertise: it has people lining up, wanting to take part. This trend will continue – some people want to be involved in their passions and others are in it for the financial aspects. But regardless, the demand will be met for some time to come and this will reflect in the prices.
Yet what goes down tends to go back up – so amass while you can. Next time you buy a product or twenty, inquire about shelf-life.