In the early years of Colorado’s cannabis business, prices were primarily driven by demand; More specifically, they were driven by people who are willing to pay a large amount of money for premium products. Either due to high-quality genetics or an excellent growing environment. These produce a high yield of premium product, which in turn drives prices up. However, the supply side is equally as important; How many plants can you run off of a given amount of space, regardless of quality? This ultimately controls how much one can grow and sell at a specific price point. This is before it starts to outpace demand…
Today, we see a mixture of demand-driven pricing and supply driven pricing, with plenty of products between $10-$15 per gram. Many limited one time deals or promotions under that range. However, as we transition into the next year in Colorado. I am confident that supply controlled pricing will become the norm for most cannabis products. Why? For the simple reason that the supply side is quickly becoming saturated with both new and existing businesses.
Demand Driven Pricing: Ground Zero & Beyond in Colorado’s Cannabis Business
In order to stay competitive, you must either offer an excellent product at your tier of pricing. This or find a way to differentiate yourself from other brands. Some examples include quality control (new testing standards will be implemented in January), concentrate products, vaporizer devices, strains bred for specific patients (cough cough), or simply a unique name. Whichever way you choose to differentiate yourself, it must be 100% clear and honest; Many people have been left disappointed after buying some cannabis products. Those products are either contaminated, weak in potency, or only doing so much else other than being organic. All of which clearly should have been advertised up front. Especially with Colorado’s Cannabis Business
I believe that we will see some consolidation amongst competing businesses. Newer companies offering higher quality strains and brands will emerge. These companies will take market share from those who sell weak or wildly inaccurate products. These new players, like The Stone Dispensary, will also be able to leverage their existing customer base. This will allow them to grow brand awareness and increase overall sales in a way. Many existing businesses are struggling to do now due to the pandemic.
Marijuana Business Factbook
In 2014, the data analytics software company New Frontier released its first “Marijuana Business Factbook”. It highlighted that indoor grow space was increasing by 24% on a year over year basis. Also that the wholesale price of cannabis would drop dramatically once supply caught up with demand. As someone with years of experience in growing and cannabis analytics, I tend to agree. People continue to demand high quality product (after all, there is no THC without flower). We are now starting to see low-grade flower that was previously thrown under the rug being sold. This is also into a saturated market for much cheaper prices.
In 2021, this trend will continue, however the price of high quality cannabis flower will drop even further. Commercial-scale production equipment will lower the cost of entry for new growers. The days of 1 pound outdoor grows for $1,500 are starting to become a thing of the past; We are quickly transitioning into an era where professional level infrastructure. They can be housed in larger facilities, allowing for better quality and a higher yield per acre. This is Colorado’s Cannabis Business.
Weed Production Vs Value
For those who want to “hustle,” they will find ways of producing large amounts of Cannabis at an extremely low cost; This can eventually lead to a new tier of very inexpensive cannabis products. Which in turn will drive down the overall market value per gram or ounce – A process which I believe will eventually be a net positive for the industry.
In turn, this will allow for more highly specialized products to emerge that cost above $10 per gram. This will provide additional benefits or strains that require a much higher capital investment; However, all of these new trends in pricing pale in comparison to what awaits us outside of Colorado. As we have seen with the extract markets in WA and CO, prices of cannabis concentrates for local non-cannabis patients can easily be upwards of $30 per gram.
With Colorado being the first mover, it will almost certainly experience some growing pains as we transition into this new era with higher capacity facilities; However, at least this time around you have a track record and the ability to learn from your past mistakes.
Pot Cash on Hand
Lastly, I believe that people with significant cash on hand will continue to be rewarded in 2022 as companies seek out additional sources of capital – Be it through conventional financing or mergers/acquisitions. There is already a growing amount of talent looking for work (as we have seen with a number of recent departures) and I would expect this trend to accelerate in the coming year.