We all know the weed industry is on fire. Why then are wholesale pot prices bottoming out?
Big business is getting the blame for growing more marijuana than the market demands and for pushing out smaller businesses that can’t keep up.
Carter Laren, cofounder of the cannabis incubator group Gateway, said, “When marijuana sells for $750 a pound, it starts to become difficult to make a profit. When it gets somewhere below $500 a pound, it becomes impossible.”
Experts concur there are two ways that businesses can compete in this new market, one of the fastest growing in the country, and that is by developing new cultivation technologies and producing more and more weed.
Unfortunately, both of these endeavors are not easy for small businesses to pull off, especially in view of the federal ban on marijuana that keeps weed-related businesses from being able to deal with banks, get loans, etc.
Douglas Brown of Contact High Communications told Forbes that it wasn’t existing cultivators that tipped the market, but rather the newer and bigger growers entering the scene.
“At some point—and we are probably there now—flower becomes a commodity, like soybeans or corn. And then only the biggest players make any money selling it. Margins are thin, but they grow a lot of flower,” said Brown, who pointed to what he called “enormous” grows in Pueblo, Colorado.
Here is an example: The Denver Post ran a story on how five men emerged on top of Denver’s pot industry just two years after the first recreational joint was sold. Holding about 134 marijuana business licenses (13 percent of the total) in Denver, they then went on to corner the city’s pot market largely by acquiring smaller grows, shops, dispensaries and infused product makers.
Meanwhile, growing flower today is not as as simple as throwing some seeds into the ground. It can cost millions. Modern grow facilities use expensive, cutting edge technology to control lights, water, odor and more.
Another issue is that recreational weed has a considerably larger market now than medical, which means large corporations are circling around, ready to swoop in to corner the market, pushing out MMJ dispensaries and smaller players.
We also know that when there is a drop in profit margins, big businesses are the ones with deep enough pockets to withstand it. If they can eliminate, or discourage, smaller businesses, they can carve the market down to just a few players.
Sound familiar? This is something cannabis activists have been worried about since day one.