Wholesale California marijuana prices drop to their lowest level since legalization
Marijuana farmers in California are now receiving the lowest price for their crop since cannabis was legalized in 2018 — calling into question whether what was once thought to be a slam dunk cash crop is even still worth planting
The problem: There's simply too much legal weed on the market. The glut is such that it has depressed the value in some cases by more than half of what farmers once reaped. Dispensaries are also seeing less business from reduced demand, but unlike farmers, aren't making major cuts to the cost to consumers.
This current economic state of marijuana is, in many respects, yet another byproduct of COVID-19.
Demand was especially high during the worst of the pandemic — when depression was rampant and entertainments options outside the home were few. That spurred growers to ramp up production.
But then the stimulus checks and the increased unemployment money stopped flowing, coupled with rising gas prices and inflation. And those who still had disposable income once again had more outside activities.
"The expanded unemployment benefits, stimulus payments and pause in student loan payments all contributed to an increase in cannabis sales along with the fact that people lost other outlets for discretionary spending," said Adam Koy, editorial director of Cannabis Benchmarks, which tracks cannabis pricing at the wholesale level. "You couldn't go to the ball game, you couldn't go to the movies."
People who normally would have a structured workday had time on their hands and were anxious, said Ryan Cullerton, director of product development and cultivation at MWG Holdings, a Sacramento-based cannabis distributor which also runs dispensaries in California.
"Smoking cannabis was a coping mechanism", said Culerton. "People were pretty stressed out and smoking weed made them feel better."
In a classic supply-and-demand cycle, Koy said farmers grew more marijuana to meet increased demand, but ended up flooding the marketplace.
The piece per pound farmers receive for their cannabis for the week ending April 15 is down nearly 50 percent from the end of October 2020. That's when rising prices hit their summit right before the fall harvest increased cannabis supply, shows data from Cannabis Benchmarks.
The first half of 2021 saw prices partially recover as the cannabis oversupply lessened. But by early June a large spring harvest added new cannabis to the legal California supply as more and more people were affected by the cutback in pandemic benefits, Coy said.
Since last June 4, the prices paid to farmers have been on a downward trajectory, but the April 15 data set new records.
Cannabis Benchmarks said the price received by farmers for their cannabis not only hit the lowest levels since pot became legal in January 2018, but the lowest since 2015 when the firm began analyzing the pricing of the medical marijuana marketplace.
The average $806 a pound California farmers received last week was down from $1,581 a pound at the end of October 2020.
Outdoor growers, which predominate in places like Mendocino County and Humboldt County, known as the Emerald Triangle, did worse.
They were fetching an average of $477 a pound, last week, shows the Cannabis Benchmark data, down from $1,074 a pound, in October 2020, a more than 55 percent drop.
Koy said it's not uncommon for outdoor growers in California to receive as low as $250 to $300 a pound.
Compounding the problem for existing cannabis farmers is that millions of square feet of new farmland to grow marijuana has come online in Santa Barbara County, Monterey County and Lake County in the last 12-months alone, said Dustin Moore, the chief strategy officer for Embarc, which owns four dispensaries in Northern California and plans to open a Sacramento location in late summer..
The wholesale price drops have not been limited to California, the largest legal marijuana marketplace in the U.S, Other states such as Washington, Oregon and Colorado are also seeking price drops, Koy said.
He said one exception is Nevada, whose legalized industry is heavily dependent on Las Vegas tourists. While wholesale cannabis prices were rising in California back in 2020, they were dropping in Nevada because the tourists were gone, Koy said.
Prices are now back up in Nevada, he said, as tourists have returned.
While farmers are in the frontlines feeling the economic sting of falling marijuana demand, dispensaries and delivery services are also seeing customer reductions and many have started lowering prices.
Statewide, dispensaries and delivery services have reduced pricing by an average of 10 percent, said Cullerton to make up for lost customers. Many dispensaries are facing financial pressures because business is down on average 30 percent to 40 percent from 2020, he said.
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