When Colorado first legalized marijuana for recreational use, the demand for cannabis products was massive and the supply could not keep up. This gave manufacturers and dispensaries the ability to mark their products up drastically to the consumer. The cannabis industry was booming as the demand continued to increase and the margins skyrocketed for retailers. This cash flow was a big factor in pushing the Colorado cannabis industry forward.
Now, however, falling cannabis prices are threatening the industry.
As the money began to flood into the industry, more and more dispensaries and vendors started opening up. While this growth was excellent and necessary at the beginning, we are now seeing what happens when a saturated market full of competition begins to plateau. Colorado’s cannabis prices have plummeted since the start of recreational cannabis, and people are wondering what this means for the Colorado cannabis market.
A Closer Look at Colorado’s Cannabis Market
The Colorado cannabis industry is one of the largest recreational marijuana markets in the country. Colorado was one of the first states to legalize recreational cannabis, and they are also the furthest along in the growth of marijuana sales and compliance regulations. Therefore, the pace of falling cannabis prices is so alarming.
Many states are closely following the way Colorado rolled out its legalization and the regulations they put in place to maintain professionalism. That is why Colorado is the best state to examine to understand the cannabis market and where it may go from here.
In 2018, Colorado’s cannabis industry now has a ton of competition. Just look at the number of dispensary licenses, cultivator licenses, and product manufacturing licenses in Colorado alone:
- Recreational Marijuana Licenses: 529 Stores
- Cultivation Licenses: 735 Cultivation Facilities
- Manufacturing Licenses: 284 Product Manufacturers
These many licenses create a ton of competition within the industry and can make it very tough for cannabis vendors to stand out. While some cannabis vendors attempt to focus on solely producing one type of cannabis product (e.g. flower, concentrates, edibles, topicals, or vape pens), most vendors try to cover multiple product categories.
This creates a market where there are a ton of companies all producing similar-quality products. It makes being noticed by the average consumer extremely difficult. There are some consumers who purchase products based on the quality and purity and some who only care about the look of the brand, but a majority of consumers only care about the price.
So, we now have a saturated industry with too many similar vendors, a limited marketplace, a consistent supply of products, and the only thing that keeps them competitive is pricing. Due to the competition being nearly based only on the price of the product, there is now a race to the bottom. The question is, what can vendors do to cut their costs enough and maintain a quality product, keep solid margins, and make their pricing appealing to the market?
Evaluation of Colorado’s Cannabis Prices
The state of Colorado started it’s recreational cannabis industry with some killer margins on their marijuana products. Since everything was so new to consumers, the demand for products was extremely high, but the supply was not there. This led to consumers being alright with paying much higher prices than they do now.
The best way to look at the falling cannabis prices in Colorado over the years is by paying attention to the price per pound. Flower is the root of every other product, and if the price of buds goes down, everything should decrease. Look at where the price per pound was at in 2015 and where it is today:
Price Per Pound Since 2015:
- January 1st, 2015 – $2,007/Pound
- January 1st,2016 – $1,948/Pound
- January 1st, 2017 – $1,471/Pound
- January 1st, 2018 – $1,265/Pound
- April 1st, 2018 – $1,012/Pound
This is nearly a 50% decrease in the price per pound in just 3 years. Even in the first 3 months of 2018, the price per pound dropped over $200. It is safe to say that by the end of 2018, the price per pound will drop well below $1,000/pound. There are even whisperings through the grapevine that prices are already at $750-$900 per pound, which is crazy!
The price per pound dropping this low is not a great sign for the wholesale side of things. This price drop is great for the consumers though, right?
What Does This Means for Colorado’s Cannabis Market?
Falling cannabis prices have created some challenges for Colorado’s market. Wholesalers are now forced to keep dropping their prices in order to move product and keep their doors open. While the demand for cannabis is absolutely there, in order for wholesalers to maintain consistent cash flow with prices this low, they need to sell more product.
The only problem is that every vendor and cultivator is trying to do the same thing. As other states begin to legalize marijuana, there will be fewer people coming to Colorado solely for cannabis. It is important for Colorado vendors and cultivators to be ahead of these changes and prep accordingly.
As prices drop, manufacturers and growers are forced to find ways to cut their costs and maintain their margins. Consumers need to be aware of the changes to the market. These changes directly affect the final products they are consuming. When any market comes down to pricing and not quality, you begin to see corners getting cut.
Vendors no longer need to stick out with your quality – they just need to offer the best pricing. When Colorado’s cannabis industry first started, it was all about quality and helping patients have a better quality of life. Like any other industry in our society, capitalism takes over; and while that’s necessary for growth, it’s not necessarily the best for the everyday consumer.
Predictions for 2018
2018 will be an interesting year for cannabis. The federal government is finally pushing for legalization on a national scale. The one thing that would drastically change the direction of the cannabis industry is federal legalization.
Every state that has already legalized cannabis will be dealing with the same saturated market that Colorado has been working with. That means that if cannabis is federally legalized, there will be a ton of cannabis vendors trying to take control of the national market. Only the vendors who are geared up for major growth and can maintain consistent products will survive this massive change.
Until legalization happens on a federal level, it is safe to say that falling cannabis prices in the Colorado market will continue to drop. We may see smaller vendors fall off or partner with larger vendors. We are already beginning to see certain vendors outsourcing their manufacturing to different companies to cut their costs.
While this is the manufacturer doing what they need to do to survive, this could create conglomerates of companies that could start to have control over the market. Pay attention to what vendors come out on top as the Colorado cannabis industry goes through these changes. This is a pioneering industry that is unlike any other. We are going to see some serious changes over the next few years, and it will be interesting to see where it goes from here!
Learn more about what’s going on in the Colorado cannabis industry here!