The greatest challenge facing Cannabis companies today is production cost. This is no surprise, given that Cannabis production in many states in the United States remains illegal under federal law. As a result, many businesses can’t secure traditional sources of capital and remain at high risk for prosecution. They generally operate as cash-only businesses and bear all their overhead expenses out of pocket. Therefore, here are the exact reasons why legal Cannabis is so Expensive.
Why Is Legal Cannabis So Expensive?
While the average legal Cannabis in Colorado is reportedly $3,392 per pound ($1,533/kg), these figures underestimate the actual production cost. For example, most Colorado dispensaries estimate their actual cost at closer to $4,000-6,000 per pound (1.8 kg-3 kg). For instance, the retail price is even higher in other jurisdictions, like Washington State. And although these states are legal, Cannabis cost is still expensive.
These numbers may seem outrageous and contradictory to those already familiar with commodity crops such as wheat or corn, where production costs are minimal. But Cannabis is not a typical commodity crop. It is a unique product requiring significant investment in time, energy, and resources before it can hit the market. As a lucrative commodity, marijuana cultivation is done in legalized states. Which makes price comparisons difficult. Hence, legal producers of Cannabis need to price their products so expensive. This article examines several factors that contribute to all cannabis’ high cost and takes a closer look at how much the price costs.
Why Does Legal Cannabis Cost So Much?
Several factors influence Cannabis pricing, including:
- Cultivation techniques
- Regulatory costs.
- Product testing.
- Labor & benefits costs.
Although this factor plays a role in influencing Cannabis price, the level of risk for production is more significant. And not necessarily actual overhead costs that ultimately determine to price. As long as the federal government considers marijuana illegal, those who produce it will operate in a legal grey area. Which does not allow legal Cannabis growers the luxury for less expensive costs. They also have restrictions to the regular route for business loans. This has unique implications for how producers account for their revenue and expenses.
Why Legal cannabis So Expensive: Yields
One of the most important factors that influence Cannabis pricing is yield. Cultivators know “Big Buds Make Big Bucks,” many strains with high THC or Cannabidiol (CBD) ratios are more expensive. This is because they cost more to produce. This is especially true for indoor producers who must spend resources on lighting, trimming, curing, and other costs. For this legal Cannabis production level, the cost end cost will be expensive.
Another factor that influences yields is the plant’s maturity at harvest time. Cannabis professionals measure cannabis maturity in various ways: dried-leaf percentage (DSP), total dry mass (TDM), and cannabinoid profile. It is important to note that mature plants are not necessarily more potent than un-mature plants. Un-matured plants can be more consequential. Depending on the strain, cannabinoids (and other substances)can still present at higher potency levels.
Plant Height: Mature vs Un-Mature Yields
A third factor is the method of cultivation. Simply put, indoor cultivation requires more time than outdoor cultivation.
As a result, the price of indoor-grown Cannabis is higher when compared to outdoor-grown Cannabis. So while it takes two months for outdoor plants to reach maturity and yield about 1 pound (0.45 kg) per plant; It takes an indoor grower 4 to 6 months to achieve the same maturity (and yield) level.
Because indoor cultivation is scientific in its makeup, to grow legal Cannabis, setup costs are expensive. Considering these factors, customers need to understand the matrix of production.
Why Legal cannabis So Expensive: The Level of Risk
Another factor influencing pricing is the legal risk associated with growing or selling Cannabis. While many states have decriminalized and medical-i zed marijuana, at the federal level, it’s still illegal for any reason – even in states where it is legal.
The risk associated with growing Cannabis varies depending on many factors. Like the size of your operation, who you sell to (including non-Denver dispensary buyers), and how you manage your finances. These factors are vital whether you live in a state where cannabis use has been legalized or not. The cost factor comes into play again. For a legal Cannabis cultivator, the thought in the back of their minds is how expensive the product will be.
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Cultivators that grow in small amounts are less likely to be investigated. However, they still face a risk of confiscation and arrest because the cultivation of “even small amounts” is illegal under federal law. Those who produce commercially are likely to attract more attention if their plants or wastes are discovered by law enforcement or someone else.
Sellers also have unique risks. Every state imposes different requirements for the seller to pay sales tax. As a result, sellers are forced to spend thousands of dollars in back taxes and penalties when caught. The advantage of this is that legal Cannabis is so expensive adhering to taxation helps keep their business running. It is like a back-scratching phenomenon. Even those who play by the rules – paying their state’s required taxes — may be subject to civil lawsuits. Former spouses may sue business owners, business partners, landlords, and others who may claim that the seller lost money by selling a legal product.
Budgeting & Profit
Many marijuana cultivators don’t keep accurate records of their expenses; instead, they rely on guesswork when pricing their products. This usually leads to an inaccurate profit margin and sometimes even losses in a given quarter or year.
The result is a lack of profit that can cripple the producer’s ability to scale up or expand into other markets. Instead, these producers should use software to automate their finances to stay on top of their budget and make informed decisions for the future.
Budgeting your Cannabis grow takes time, but it pays off in the long run. It is also a smart move to learn the basics of small business accounting so you can understand your financial data and forecast future costs.
As for pricing, you must know how much each pound of marijuana costs you to produce – not just how much it sells for on the market. This allows you to set a profit margin to help your business run smoothly and efficiently.
This profit allows you to pay for your overhead expenses like rent, labor, water, electricity, and other items; It also allows you some room for error if the market prices decline or increase unexpectedly. Additionally, an accurate accounting system enables you to predict demand by tracking your market share.