For newly recreational states like California and Michigan, there’s a lot to learn from the now 7 year old industry. If you haven’t heard, both Colorado and Washington (which were first to legalize back in 2012) have seen drastic changes in the wholesale marketplace this year. Wholesale cannabis prices have risen 2x of what they were last year in some categories, yet retail prices haven’t followed suite.
How is this going to effect the cannabis market in Croptober and 2020?
The wholesale cannabis markets are going bonkers right now in WA & CO. Lets look at the numbers;
For both states the trend is clear, prices are rising. In Colorado, the graph only shows the tip of the ice burg. These numbers came from the states ‘Median Market Prices’ published quarterly online, but from our marketplace data the honest price for good indoor flower is nearly double the ‘median price’. Why have prices gone up?
Like many issues, there’s many answers. One of the unforeseen forces in this years market was the legalization of hemp in 2019. Dozens of farms in both Colorado and Washington have let their licenses expire while switching to industrial hemp. Less supply = higher prices.
For a more detailed analysis, check out our recent blog post breaking down the Shortage in Washington State.
Retailers are Slow to Adjust
If wholesale prices are skyrocketing, you’d expect retailers to be paying more too. From what we hear, this has not been the case.
After talking to multiple farms in Washington it sounds like the retail prices are well behind the wholesale trend. Farmers are rising their retail prices, but stores are still reluctant to change what they’ve paid in the past.
Take a look at the chart below where I laid out a hypothetical situation where retail prices hold fairly steady and wholesale prices rise;
From this chart you can see how the gap between retail prices and wholesale prices have shrunk dramatically in the last year!
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Though these retail prices are only hypothetical, it reflects what we’ve heard from outdoor farms in the last couple months. Retail prices have started to edge upwards, but not nearly as quickly as the wholesale marketplace.
More Wholesale Flower
Whats the most obvious result of a shrinking gap? More farms are abandoning their retail sales, for quicker, lower overhead wholesale transactions. If you don’t already have an established retail brand, it doesn’t make sense to invest in the packaging and labor that it takes to push out retail products.
Less Competition, Bigger Brands
If 10-20% of farms pivot to a more wholesale focused business model, we could see a large shift on the retail market. If stores have less brands to choose from, the well established players should flourish.
Also on the bright side, all brands might see a little more power in retail negotiations. Stores will have to keep their shelves stocked while facing a shrinking supply chain and increasing prices. Most retail stores have neighboring shops, so get ready for the fierce competition between shops trying to maintain a variety of cheap weed in the stores.
Consumers Will Pay More, Or Retailers Will Battle
It’s hard to imagine that wholesale prices would rise without the retail market eventually following.
Once retailers start paying more for their products, we’ll start to see the consumer prices rise. If some shops take advantage of the raising prices to undercut the competition, it could get ugly. It’s been rough for farms the last few years, but retail shops might see the squeeze in the current market.
What Other States Can Learn
The market has a way of balancing itself out, and unfortunately that involves a lot of failed businesses. What we can learn from WA and CO is that prices can’t fall forever. No matter which way you look at it, for the last 5 years farmers have been seeing less and less money for their weed and this has only changed recently.
Right now industry trends (and an increase of hail in Colorado) has caused a shortage compared to years past. Prices are going up, and the farms that have stuck out the rough times are finally seeing green in the higher prices.
The successful canna-businesses will likely be the ones who are flexible enough to move around with the changing market, while embracing the instability. If your operating a farm in an emerging market like California plan on retail prices being nice and high for the first couple years, but trending down. Also plan on a period of time where prices reach unrealistic lows before hitting the breaking point for most farms, causing a relative shortage and prices to rise. Those who survive, will thrive.
Get It While You Can
This is where I step in and tell you to sell every scrap of weed through Kush.com
We don’t know where the wholesale or retail prices are going to be in the next 6 months. The only thing we know is that pre-harvest prices look great for farmers who grow good pot. I’d strongly recommend weighing your options this winter and consider limiting your labor costs by taking on more wholesale accounts.
Maintaining a retail presence and keeping your buyers happy is important, but don’t get lost in the dust and sell to retailers at the same price you did last year! Post your products, take bids, and make sure your getting the best price this year with Kush.com
Wanna try some Hemp Derived Cannabinoids? Try out shop.kush.com