History Repeats Itself
Colorado’s recreational marijuana market is easily the largest and most developed. It is safe to say new, and upcoming cannabis markets will follow a similar path to Colorado’s. However, this may not be a good thing. Colorado’s wholesale cannabis prices have dropped nearly 50% within the past three years. The price per pound has gone almost as low as $750/pound. While it still averages around $800 – $900 per pound, these low prices have caused a spiraling race to the bottom. Marijuana vendors and cultivators are being forced to cut their costs down drastically, to maintain their margins and keep their doors open. The price per pound affects many different aspects of the market.
Side-Effects of Dropping Cannabis Prices:
-
The retail price drops drastically, and competition must focus on keeping their margins.
-
In turn, quality is no longer a focus and competition does not worry about making a better product.
-
Vendors who can’t cut costs close their doors and liquidate their assets by selling to larger manufacturers.
-
Small cannabis businesses have trouble thriving and eventually fall out of the race. Market competition begins to drop, which creates a monopolistic structure.
Every legalized state market is heading in this direction, and some are doing it faster than others. Washington, in particular, seems to be moving in a similar path. The entire focus, and purpose, of legalizing cannabis is lost when the capitalistic, big business structure starts to take over. This trickle-down effect begins with the price of marijuana per pound. There is an imbalance in the margins and costs that vendors and retailers need to keep their doors open.
Washington Cannabis Prices
Similar to Colorado’s marijuana market, Washington is in a race to the bottom. Their prices are already drastically lower than Colorado’s and seem to keep dropping. The price of cannabis per pound is as low as $450/pound. Which, is nearly $1/gram for wholesale cannabis. While this is not across the board, it’s where the market is heading. Washington needs to get ahead of this issue before it’s too late.
Last year, Washington produced nearly 60% more cannabis than in 2016. It has caused the market to become saturated, in turn, driving the price per pound down even more. Washington is still trying to get out of this deep hole they have dug. Though Washington has seen a significant increase in sales and product moved, the margins on the products are too little to keep small cannabis companies open, especially, with the tax liability that the federal government puts on the industry.
If Washington continues down this path, they will likely see the full list of side-effects from these dropping prices. Competition cannot thrive in this setting, and it is quickly dwindling. However, Washington is working hard to change the future of their industry proactively.
What Steps are Washington Taking?
Washington recognizes the path they are on and are doing their best to mitigate the issue before it’s too late. This deadly cycle of marijuana vendors opening their doors, failing to maintain margins, closing their doors, and selling their licenses to larger organizations is putting Washington at a continuous downturn. It may be good for large vendors with capital to sustain themselves, but it kills a majority of the competition. Without competition, this industry will quickly become big business, and potentially a monopolistic market. Washington is taking steps to prevent this.
Solutions Washington is Looking Into:
-
Instead of allowing failing cannabis companies to sell their license to larger organizations, Washington will pull them from the market.
-
Washington is also looking into limiting the amount of square footage each facility can use to cultivate.
-
The state may stop approving more licenses until the market has balanced out with a thriving market competition.
These solutions may seem simple, but they would drastically adjust Washington’s market. By pulling failed cannabis licenses from the market instead of allowing buy-outs, this will keep organizations from controlling local sectors and limiting industry competition. It also gives the existing businesses a more significant market share to work with, in turn, allow them to move more product at a consistent rate. Until their market begins to balance the supply out and create healthy competition, Washington will stay in a rut. It will be interesting to see if these proactive steps are taken to help revive Washington’s falling cannabis prices. It is safe to say that we will see other states tackle this same issue as legalization spreads and the industry continues to grow.
Stay informed on Washington’s cannabis industry, here!
