The same thing that happened to wholesale cannabis prices in Washington & Oregon will happen in California but worse. Here’s the situation, not only is California huge, but California’s black market is larger than the combined black markets of Washington and Oregon when they legalized. Legal weed is the enemy of black markets because they simply cannot compete with the scale and industrialization of a regulated market. This competition leads to some unintended consequences, and we’ve learned this by building the largest wholesale trading platform for the legal / regulated industry.
At first, the black market will have lower prices because of a supply shortage on the legal / regulated market. As more licensed facilities come online, retailers in the regulated market will push wholesale prices down to compete with the black market. The price competition is crucial to increasing sales at retail shops.
It won’t happen all at once, but you’ll notice one or two shops go aggressively towards the low price high volume model in each big city. Uncle Ike’s is the best example of this in Seattle. This will force the other shops in their surrounding areas to compete on price. As much as we, as an industry, want to think that providing a high quality experience will be able to help sustain higher prices, it won’t. The shops that can push their prices lower will be able to scale up the experience while continuing pushing prices lower using their new found buying power.
This is the point when some people will make a lot of money, and as a business, this is the most important time to execute.
Industry growth will be unstoppable for the next 24-36 months as the regulated market continues to eat into the black market. Prices will be pushed lower and lower increasing the overall marketshare of the legal / regulated market. Consumers will grow to love the variety, safety, convenience, and price of the new market, and this is when things will take a turn for the worse if you’re a farmer.
Somewhere between 24 & 48 months after legalization, every farm will be scaling up as fast and as furiously as possible to keep up with demand. This is when we’ll hit “Peak Marijuana” and the end of a crazy growth spurt created by the regulated market competing and winning over the black market. At this point, total consumer sales will plateau. The total volume sold may continue to rise, but the price per gram will continue dropping.
Many people will go out of business, and the ones who survive will be the operators who push for efficiency, lean up their operations, and learn how to produce more with less. In Washington, when the market was at its “projected bottom,” wholesale prices actually dropped another 35%. Currently, the wholesale price of indoor flower testing above 20%, unpackaged, is between $0.97 and $1.22/g or $440 – $553/lb. See our Washington Marketplace Analysis for Statistics.
Eventually prices will stabilize once growth stabilizes. Until then, buckle up and hold on for the ride!
As always, we’re here to help. Call us or register on the marketplace to see how we can support the growth of your business whether it’s through buying or selling.
Summary:
- Wholesale Prices will Spike (Initially)
- Retail shops are going to need to increase sales because everyone is still buying on the black market
- Retail shops will push prices lower to become competitive due to black market and regulated market pressure
- This lower price at the retailers will dramatically increase retail sales and increase demand on the wholesale market
- Some people will get very rich if they play their cards right
- The industry will hit “Peak Marijuana”
- Growth will slow and prices will drop significantly over a short period of time
- People will go out of business
- Price and volume will stabilize
P.S.
If you don’t think the legal / regulated market will win, you’re wrong. Think about it. The regulated market has access to outside capital, consumer support, and the backing of the state. This last point is the most important, as soon as the regulated market starts to complain about the black market there will be a crack down from the state. It won’t be pretty. Plus the more sales going through the regulated system equals the more tax dollars into the state’s coffers. If you’re just getting your feet wet in California, look what happened in the other states and make a plan now. Call a couple of operators in each state, ask them about their sales over-time, and ask for an honest opinion.