The price of pot is going down, way down, as more people launch large-scale industrial grow operations to supply the state’s dispensaries and makers of weed-infused goodies.
The precipitous declines of the past several months are likely to continue, say experts, resulting in massive changes to the nascent industry as more operations rethink the structure of their businesses to take advantage of the cheap cannabis crop.
The cost for a pound of pot has been sliced nearly in half over the past several months, from $2,400 to $2,600 last October to $1,400 to $1,600 last month, according to data from California-based Tradiv, an online marijuana wholesaling marketplace and a 2015 graduate of local accelerator Canopy Boulder.
And while prices started 2016 around $2,100 on Denver-based competitor site Cannabase, they dipped to a low of $750 per pound in June before rebounding to a $1,400 monthly average.
“Over the last year, we’ve seen a steady decline in prices,” said John Manlove, Tradiv’s director of sales.
Flower flooding the market
Manlove said the drop is attributable to a surge in supply as more new wholesale recreational growers enter the industry.
“They produce a lot of flower. It’s really flooded the market.”
In August of 2015, there were 493 licensed growers in the state. Today, there are 583, an 18.2 percent increase.
Those numbers include cultivation licenses held by dispensaries and makers of marijuana-infused products that grow their own pot; the state does not separate out independent wholesale grow operations.
But industry insiders say more businesses that grow wholesale pot exclusively have jumped into the mix, even as existing operations expand their grows to serve the growing consumer demand.
Year to date, total sales are 35 percent higher than the first six months of last year and are on pace to reach $1.35 billion in 2016
But the percentage of revenue shops are making from flower (industry speak for smokeable marijuana) is decreasing steadily as more consumers opt for edibles or concentrates, said Tom Jones, director of analytics at Boulder’s BDS Analytics, which provided the sales data.
Flower sales still make up the bulk of dispensaries business at around 56 percent. But that’s down from last June, when they accounted for 62 percent of dispensary sales.
During that same time, concentrates market share rose from 18 percent to 24 percent, while edibles now make up 13 percent of sales, up from 8.6 percent a year ago.
That’s good news for the state’s 198 edibles manufacturers, who are profiting from both the increased sales volume and margins as the main ingredient in their product gets cheaper.
“That, of course, has been wonderful,” said Nancy Whiteman, co-owner of Boulder edibles maker Wana Brands. “After labor, the cost of trim (the excess foliage cut away from the buds) is one of our key costs.”
Medical margins tight
While the cost of trim has dropped, the price the consumer pays for the end products has stayed relatively stable. Statewide, recreational edibles were retailing for $15 to $17 per unit each month for the past year, according to BDS.
Prices for medical edibles saw similar stability, selling for $11 to $13 per unit.
But medical margins continue to be tight, Whiteman said, because the cost of marijuana grown for medicinal purposes has not experienced the price drop seen on the recreational side.
The average asking price for a pound of medical cannabis flower on Cannabase was $1,850 in June, barely changed from $1,900 six months earlier. That’s partly because medical grows still must be tied to a maker of infused products or a dispensary, so there has not been an explosion in the number of wholesale growers as there has been on the recreational side of the industry.
Colorado added just 39 medical cultivators in the past 12 months, from 762 in August 2015 to 801 today. That 5 percent increase comes in sharp contrast to the 18.2 percent growth in recreational growers.
“We’re still pretty constrained even in terms of availability,” Whiteman said.
The disparities in the recreational and medical markets create a difficult situation for dispensaries. As customers see prices drop on the recreational side of the market, they expect to see similar declines for medicinal marijuana.
But without the benefit of falling commodity prices, dispensary owners have less room to adjust medical pot prices.
“We’ve dropped our pricing as low as we can unless something very drastically changes,” said Kyle Raddatz, manager of Gunbarrel’s Green Dream medical dispensary and operations consultant with Niwot-based Shift Cannabis.
A commodity crop
Like all medical retailers, Green Dream grows most of its own product, a costly and labor-intensive process that eats up a significant portion of the operation’s expenses.
Dan Anglin, co-owner of a Boulder edibles and concentrates manufacturer, said the cost to grow the 3,800 plants it takes to fuel demand for AmeriCanna’s infused gummies accounts for about 60 percent of his company’s monthly operating budget.
Anglin estimates it costs him about $1,100 to produce a pound of marijuana. That figure includes “rent, electricity, water and a pretty healthy payroll.”
Large wholesale grows can bring that cost-per-pound number down significantly, to around $750 or lower as lighting and HVAC technology improves and they achieve economies of scale by adding plants, according to industry insiders.
Chuck Winters, owner of Boulder-based wholesale grow company Kind Enterprises, said it’s not out of the question for the cost of cultivation to be as low as $500 a pound in the near future.
“Weed is a commodity crop,” he said. “If you know how to approach this as a business, you can keep your overhead low and the margins will be there.”
Anglin and others say maintaining their grow operations is the best way to control the quality of their final products. But as dispensaries and manufacturers have to respond to rapidly rising demand, buying outside supplies becomes more attractive.
Roy Bingham, founder and CEO of BDS, said he believes more companies will rethink growing their own pot as the market matures and the price for pot plummets further.
“I expect it to end vertical integration,” Bingham said. “Just like in other industries, there will emerge businesses that are good at the beginning of the supply chain and those at the end of the supply chain.
“Those in the middle, the ones trying to do everything, they’re going to go away.”
News Moderator: Katelyn Baker
Full Article: More Growers Brings Surge In Weed Supplies, Plunge In Boulder County Pot Prices
Author: Shay Castle
Contact: (303) 442-1202
Photo Credit: Jeremy Papasso
Website: Daily Camera
