Too Much of a Good Thing? Colorado Pot Glut Prompts Wholesale Price Plunge
Colorado's green goldrush is turning into something of a bummer for some would-be marijuana-growing mavens, as an oversupply of pot is causing wholesale pound prices for the state's booming recreational market to drop dramatically. But with retail prices not following suit, it's pot shops, not consumers, who are making bank on the price drop.
The wholesale price is the price paid to growers by pot shops, edibles manufacturers and others.
According to Cannabase, an online wholesale marketplace, the average monthly asking price per pound for wholesale buds has declined by a full third so far this year. In January, the average price was $2,106 per pound; by June, it was $1,402.
In a further sign of distress in the wholesale weed market, the lowest monthly asking price fell even more dramatically, from $1,800 in January to $750 in June.
Producers who are selling pot for $750 a pound are probably losing money. In an analysis of the Colorado pot industry in the recently published Narconomics: How to Run a Drug Cartel, Tom Wainwright pegged the production cost of industrial indoor marijuana at $2 a gram, or just under $1,000 a pound.
"It is an eerily simple problem," Cannabase CEO Jennifer Beck told the Marijuana Business Daily. "Capital is attracted to grows. Everyone wants to be the Bud Light, the Coors, the Bob Marley, the defining brand, and there aren’t enough people in Colorado to buy up all this product in real time. I’m concerned that we’re going to have way too much overproduction."
"We all knew it was coming, because more and more production capacity is coming online," said Jay Czarkowski, an industry consultant at Boulder-based Canna Advisors. "Medical is hanging in there, but rec is really finally starting to plummet. I’ll use that word—plummet. Probably 30% in the last four or five months."
Czarkowski is correct about capacity. According to the Colorado Marijuana Enforcement Division, the number of licensed recreational growers has jumped 20% in the last year, from 465 last June to 554 this June. The number of licensed medical growers, by contrast, has increased only 3% over the same period, from 764 to 788.
The medical marijuana market is much smaller than the recreational one, accounting for about a quarter of all sales, but prices have remained steady there with the average asking price for a pound of medical buds going for $1,850 in June, down only slightly from $1,900 in January.
That's in part because of the smaller jump in medical growers, and that's because dispensaries are still required to grow at least 70% of the buds they sell. That "in house" requirement serves to limit overproduction in the medical marijuana sector.
"Medical is staying stable because more and more grows have been really just focusing on rec. So the supply is short enough on the medical side that prices for wholesale have remained stable, up in the $1,800 to $2,200 (range), if not even $2,500 for super-top-shelf," Czarkowski said.
But it could be hard times ahead for less competitive recreational market growers. Indoor growers with older, less efficient equipment could be especially squeezed as they try to compete with more heavily capitalized and technologically advanced operations.
"There’s a general sense of concern, if not downright panic," Cecilia Gilboy of Tradiv.com, another Colorado pot price watchdog, told Marijuana Business Daily. "One business owner told me, ‘When your product is as good as ours and you still can’t sell it, that’s a pretty clear sign it’s time to get the f**k out.'"
While declining wholesale pot prices should be a boon to consumers, that has not proven to be the case yet. Average retail marijuana prices have declined only slightly this year, which means it's high times for pot shops that are pocketing the difference.