Cheap Weed Has Become a Big Problem in the Pot Industry
Thailand's Cannabis Industry Clouded as Legal Threats Emerge
Photographer: Andre Malerba/Bloomberg
ByTiffany Kary
December 19, 2022 at 7:00 AM EST
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Follow the money as Tiffany Kary shows you how once-illegal drugs like marijuana and psychedelics are becoming big business.
This week, I look at a trend that’s likely to loom large in the year to come.
Rock-bottom weed?
Marijuana keeps getting cheaper, and that’s becoming a growing problem for the industry.
If you thought regulatory issues were the cannabis industry’s biggest challenges going into 2023, take a closer look at the price of raw marijuana flower. Retail and wholesale prices have fallen as competition with the black market puts pressure on legal retailers to keep prices low, and this is making it hard for growers to get the supply-demand balance right.
“The industry today is facing a number of headwinds. The most existential is pricing,” said Rick Maturo, director of insights and intelligence for cannabis-data firm BDSA, during a webinar last week.
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 — the steepest fall ever seen for marijuana in a 12-month period, according to BDSA. Wholesale price declines were even more dramatic, especially in more “mature” markets that have had legal programs for longer, BDSA data shows. In Colorado, the average price per pound has declined 51% since the fourth quarter of 2020. In Oregon, it’s down 36%.
The price declines are partially an after-effect of the strong growth seen during Covid-19 lockdowns, Maturo said. The industry may have anticipated that people who adopted or ramped up use during the pandemic would continue, but many didn’t, contributing to an oversupply of raw marijuana. Still, competition from the thriving black market is the main concern, he said.
Some states where marijuana has been legal the longest also seem to be approaching “peak weed,” with lower prices only creating tight margins for the industry instead of attracting new buyers. The compound annual growth rate from 2022 to 2026 is only anticipated to be 1% in Colorado and 2% in Oregon, according to BDSA. By comparison, New Jersey and Missouri, which just legalized recreational marijuana recently, are expected to experience 35% and 37% growth, respectively.
The challenge is expected to continue into 2023, Maturo said. While consumers have been buying more product in some places, it hasn’t been enough to offset the impact of falling prices, and this has made deals and promotions less effective. He referred to Colorado and Florida, where lower prices no longer increase demand. It adds up to sales in some markets that have that have fallen in dollar terms from a year earlier.
Companies that joined the BDSA call shared how they’re dealing with the issues, saying they’re digging deep into merchandising and price strategies and taking a store-by-store approach.
“It’s losing its novelty appeal,” said Acreage Holdings Chief Marketing Officer Patricia Rosi. “We’re entering a commoditized world.”
Number of the week
$4 million
The total estimated value of cannabis products seized in New York City, according to enforcement agencies, as the state prepares for licensed vendors.
Quote of the week
“New Jersey is only seeing the beginning of what is possible for cannabis,” said Jeff Brown, executive director of the state’s Cannabis Regulatory Commission, in a Dec. 16 announcement of record recreational sales of $116.6 million in the third quarter.
What you need to know
In more evidence of the downward pressure on weed prices, Bloomberg Law reported Dec. 16 that it’s never been easier to buy pot in New York City ahead of the start of legal sales.
Cannabis producer Ianthus Capital Holdings is working with an adviser to explore a potential sale, according to people with knowledge of the matter.
Thailand’s Bhumjaithai party, best known for its cannabis decriminalization policy, welcomed dozens of lawmakers from other parties as new members, shoring up its role as a potential kingmaker in the next election.
Prosecutors said there’s no reasonable prospect of convicting three former executives of CannTrust Holdings on fraud and other charges, marking a likely end to one of the Canadian marijuana industry’s biggest scandals.
The research is still evolving, but a decline in teen drinking likely stems from a mix of policies and public health campaigns. The same level of effort should be applied to discouraging teen cannabis use — and quickly, writes Bloomberg Opinion’s Lisa Jarvis.
PharmaTher Holdings announced it was granted orphan-drug designation by the FDA for ketamine.
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