How much does cannabis cost?
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- Factors that determine the cost of cannabis
- Bottom line
As legalization has spread across the country, consumers have been seeking out all sorts of cannabis products for both medicinal and recreational purposes.
Market demand for cannabis is pretty consistent across the board. But what’s not as consistent? Pricing. There’s no one-size-fits-all approach to cannabis pricing. But there are several factors that come into play when determining the prices of different cannabis products.
There are several factors that come into play when determining the prices of different cannabis products. Photo by: Gina Coleman/Weedmaps
Factors that determine the cost of cannabis
The first consideration is where the cannabis is grown, manufactured, and sold.
“The regulatory framework in any state or community will determine the market and the price,” says Andrew DeAngelo, cannabis industry consultant and strategic advisor and co-founder of California-based dispensary Harborside.
Every state (and, in some cases, individual cities) has its own set of laws and regulations, all of which impact the way cannabis is grown, manufactured, and sold, impacting in turn how cannabis products are priced. Cannabis pricing from state-to-state can vary widely. For example, according to LeafLink’s Wholesale Cannabis Pricing Guide, the average wholesale price for a pound of flower is $3,260. But in Oregon it’s just $915.
“The variables that most impact cannabis pricing are licensing regulatory frameworks, and by extension, state and local tax rates levied on both businesses and consumers,” says Colin Earl, cannabis consultant and CEO of SISU Consulting. “For example, with markets that have under 30 total licensed cultivators, the low supply will drive pricing more so than potency [or] perceived quality. For markets such as Colorado and Oregon that have ‘open’ licensing frameworks, wholesale pricing will be primarily dictated by the current supply, whereas retail pricing can vary based on locality due to local retail licensing limits.”
Taxes can also drive up costs for cannabis producers, which ultimately drives up both wholesale and retail prices. “This is most aptly demonstrated in the California market, where steadily increasing cultivation and excise taxes have left most businesses in a precarious position,” says Earl.
The way cannabis is grown can also factor into how the final product is priced.
“Overall the pricing for flower will mostly be categorized by growing method. with indoor being the most expensive, outdoor being the cheapest, and greenhouse in between,” says Earl.
For cannabis that’s grown outdoors, prices can also vary throughout the year, particularly during harvest time.
Indoor and greenhouse flower can be consistently harvested year-round, so the pricing is relatively stable. Photo by: Gina Coleman/Weedmaps
“As indoor and greenhouse flower can be consistently harvested year-round, the pricing for those are relatively stable,” says Earl. “Outdoor flower is harvested once per year, which will generally lower prices around harvest time—depending on the microclimate from July-October.”
Not all cannabis is created equal. As such, not all cannabis products are going to be priced the same. Generally speaking, the higher the quality, the higher the price.
“Cannabis, each batch, each plant even. could turn out a little bit differently,” says DeAngelo. “So, after everything’s dried and cured, you go through a grading process of each batch and that grading process will determine the wholesale price for the batch generally.”
“There may be a large difference between the pricing of ‘low end’ and ‘top shelf’ flower to cater to multiple consumer segments,” says Earl. “Demand for specific genetics, cannabinoid, and terpene testing results. will greatly impact the price.”
There are a huge variety of cannabis products on the market and different products are priced in different ways.
As mentioned, flower is typically priced strictly on quality or demand.
When it comes to extracts the properties of the flower also play a large part in the pricing, “with a heavy emphasis on the cannabinoid and terpene testing results,” says Earl. “After that the specific method of extraction’s respective yield and demand will largely dictate wholesale and retail pricing.”
“Ethanol extraction is going to have a different cost than steam distillation, which is going to have a different cost than water extraction, which is going to have a different cost than extracting in plant fats and oils,” says DeAngelo. Labor- and time-intensive processes can drive up the price of the end product. The equipment needed for extraction can also drive up prices. For example, according to cannabusiness consulting firm Cannabusiness Plans, a high-quality CO2 extraction machine can cost up to $450,000.
With regards to manufactured products such as edibles, topicals, and beverages, the materials used in packaging can greatly range and affect the price. Photo by: Gina Coleman/Weedmaps
Packaging, which is standard for a variety of cannabis products, including edibles, topicals, and tinctures, can also have an impact on price. “Many state markets have mandated that cultivators, extractors, and product manufacturers utilize ‘child safe’ packaging, which establishes a consistent cost for all businesses,” says Earl. “With regards to manufactured products such as edibles, topicals, and beverages, the materials used in packaging can greatly range and affect the price.”
From a consumer standpoint, retail markups can also vary widely by product type. According to LeafLink’s Wholesale Cannabis Pricing Guide, the average price difference nationwide between wholesale and retail prices for edibles is 42%, but it’s 72% for flower.
There are so many variables involved in cannabis pricing that the real answer to the cost of cannabis is “it depends.” Cannabis prices will vary widely based on everything from where you’re buying weed to what kind of product your buying, and from the quality of the cannabis to the company’s overhead costs.
Cannabis prices will vary widely based on everything from where you’re buying weed to what kind of product your buying, and from the quality of the cannabis to the company’s overhead costs. Photo by: Gina Coleman/Weedmaps
And while cannabis pricing is, for the most part, out of consumer control, if you want to make sure you’re getting a good deal, the best thing you can do is research your local market, get a sense of retail pricing, and shop at a reputable dispensary that offers reasonable prices.
How much does cannabis cost? Copy article link to clipboard. Link copied to clipboard. Contents Factors that determine the cost of cannabis Bottom line As legalization
Retail vs. Wholesale Cannabis in 2020
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;
Note how steady prices held for general Outdoor Flower from June 18′ to March 19′. Since then the average price has more than doubled! Wholesale prices in CO have been on the rise since last harvest. It’s the first steady increase since 2014!
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.
The data shows that wholesale cannabis prices are rising in Washington & Colorado. How will this effect the retail marketand prices come 2020?