While more and more states are beginning to legalize adult use and recreational marijuana, cannabis prices as a whole are continuing to fall across the country. This may sound like good news at first, but is it?
What’s The Problem?
Legal cannabis sales have been working wonders on state economies, job markets, and the recreational community.
Buyers are able to go to a local, respected dispensary and pick up their cannabis products without having to worry about the legality of their transactions.
But just because states are legalizing cannabis doesn’t mean that the illicit market simply disappears.
While regulation has always been a thorn in the side of the legal cannabis industry, pricing is becoming more and more destructive to the legal cannabis industry.
As we mentioned earlier, just because cannabis is legal, it doesn’t mean that the illicit market will disappear. It’s still there, and people are still buying from it.
The difference in sales when it comes to the illicit market is that dealers are able to charge lower prices because they lack the overheads that dispensaries have. In most cases, illegal cannabis dealers aren’t running their sales with the same business models as a legal dispensary.
Because of this, illicit dealers are able to undercut dispensary prices to score more business. And while there are always people who will prefer to buy from reputable dispensaries, there are still plenty of people supporting the illicit market, and this causes a problem for legal dispensaries.
When the prices of illicit cannabis are lower than what dispensaries are charging, customers start buying on the illicit market. And because the “product” is identical between illicit dealers and legal dispensaries, dispensaries are forced to reduce their prices in order to compete with the illicit dealers.
This results in dispensaries cutting costs, slashing profits, and shaving their margins thinner and thinner.
They’re forced to compete with legal competitors, as well as illegal dealers. And this is a massive problem when it comes to the health of the industry in the long term.
Dropping, Dropping, Dropping…
The retail price of a gram of marijuana dropped 13% to $9.43 in the third quarter of 2022 from $10.83 in the same period a year earlier. This has been the steepest fall in cannabis prices in a 12-month period, according to the BDSA.
Some states have already reached or are approaching “peak weed,” meaning that the reduction in prices is only cutting margins without attracting new buyers. The growth rate in California and Oregon over the next four years is expected to only be 1% and 2%, respectively.
The pandemic is also to blame for the falling prices, with many users discontinuing their usage habits with lockdowns and restrictions lifted. This means that there’s a surplus of raw material without the demand to sustain it.
The huge amount of supply, coupled with the decrease in demand, and competition from the illicit market, are all playing a part in the decrease in cannabis revenues.
Consistent price drops also make it harder and harder for dispensaries and businesses to run sales and promotions. Lower prices and special deals are no longer increasing demand with buyers.
What Does The Future Look Like?
Right now, we don’t know.
Current cannabis prices are following scary trends for business owners, with a lot of them expecting prices to continue to drop as time goes on.
The decrease in prices could also mean that we may see the quality of cannabis products start to drop as manufacturers try to navigate how to manufacture products under increasingly tighter profit margins.
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