Falling Wholesale Prices have Growers Calling for a Halt to New Licenses

Too many people are growing weed in America. Prices are dropping, supply is increasing, and the future of the market is increasingly up in the air.

Cannacapitalism

The first decade of legal adult-use cannabis has been interesting, to say the least. Currently, 21 states have legalized recreational weed, but because there’s no federal model for legalization, each state has done things slightly differently. Oregon, for example, didn’t introduce license caps, causing the state market to be one of the most cutthroat and competitive in the country. According to the Oregon Liquor and Cannabis Commission, Oregon has 787 cannabis retail stores within walking distance of each other. Oregon’s competition is simply too fierce for businesses to thrive, so the state has attempted to mitigate the problem by capping marijuana business licenses backdated to Jan 1, 2022. The initial pause, according to Mark Pettinger, spokesperson for the Oregon Liquor and Cannabis Control, was implemented because the state needed to work through a backlog of business license applications. He also stated that while the pause was not initially related to oversupply concerns, it is now.

Too Much Weed?

The market is greening out right now. In Michigan, for example, prices are lower than in more mature recreational markets, with wholesale tons being sold for under $1,000. While this is on par with other states’ wholesale prices, experts are concerned with the speed at which Michigan cannabis prices fell.

Lobbyists for Michigan’s largest cannabis companies are pressuring state lawmakers to prohibit the approval of new licenses to protect existing companies and keep prices reasonable. More than 1 million outdoor-grown marijuana plants are currently tagged for harvest in the state, according to estimates, and for many, it’s just way too much to have in the market at one time.

The Consequences Of Oversupply

Is there such a thing as too much weed?

For players in the cannabis industry, definitely.

Producers are growing more weed than people can consume, and as a consequence, they’ve got tons and tons of pot sitting in warehouses. This means lost revenue and profit. To make matters even more complicated, federal laws prohibit the sale of cannabis across state lines. Companies, therefore, must grow cannabis in each state where they want to do business, meaning each state is responsible for growing its supply.

It seems that cannabis growers have seriously overestimated how much they need to grow to satisfy their state’s market demands, and as a consequence, the weed is just sitting in warehouses drying out.

The consequences of overgrowing weed aren’t just financial but environmental too. 80% of cannabis is grown indoors, using complex lighting and environmental controls to maximize plant yield. That’s a setup that can use up to 2,000 watts of electricity per square meter. According to a recent analysis, Massachusetts’ budding cannabis industry accounts for 10% of the state’s industrial electrical consumption. Another study discovered growing a gram of weed indoors uses the same amount of energy as driving about 20 miles in a Prius.

Oversupply And The Black Market

In many cases, legal cannabis has fueled the black market. Unlicensed businesses and growing operations are running rampant in California, and Oregon’s oversupply has encouraged growers to export cannabis across state lines. With Oregon growers overproducing, neighboring Idaho has reported a 665% increase in illegal cannabis being seized by law enforcement. Even now, years after Massachusetts approved legalization, the majority of the cannabis economy consists of unlicensed “private clubs,” home growing operations, and illegal sales.

It’s hard to imagine a world where this problem wouldn’t be solved by federal legalization, but two years into the Biden administration, we’re no closer than we were under Trump. Cannabis legalization is long overdue, and if the government wants the market to survive, they need to act fast.

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