As a fledgling industry in many states, cannabis has gone through peaks and valleys. Competition, product costs, licensing, and regulations made it a challenge to stabilize the industry. However, as more states welcome medical or adult-use cannabis, a pattern is emerging. See what to expect from fluctuations in the cannabis industry, and how it affects the future of cannabis investments.
Colorado legalized recreational cannabis in 2012. Nine years in, the industry is beginning to stabilize, but at the expense of consumer choice and diversity.
Today, Colorado has fewer cannabis growers. Although growers are producing less, consumer demand has stayed consistent, resulting in higher prices. Colorado allowed external companies to enter the market in 2018 - 2019, which meant a series of acquisitions and vertical organizations. Over time, this forced weaker operators out of the market, leading to a less diverse, but more stable market.
For example, in 2019, wholesale flower sold for $450 - $1,000 per pound. Today, it’s at $600 - $1,400 per pound. After years of fluctuation, bigger businesses are producing and selling in bulk, leading to more stable supply and pricing.
This is good news for less mature cannabis markets. Now that the industry understands customer preferences and logistics, Colorado serves as a proving ground for the cannabis industry in other states.
Voters approved medical cannabis in Oklahoma in October 2018. In 2019, dispensaries across the state earned $345 million on medical sales.
Although Oklahoma only allows medical cannabis use, it’s also experienced pricing issues. On average, the price per pound of medical marijuana was at $4,000 per pound. But this month (February 2020), it’s hovering between $1,000 to $2,000 per pound.
The issue stems from Oklahoma’s licensing policies. There are no limits to the number of licenses the state can issue. This has led to an influx of cannabis brands on the market, driving prices down because of competition.
While this is good news for consumers, it’s not great for businesses. But as we’ve seen in the Colorado market, it’s only a matter of time before Oklahoma experiences a consolidation of its medical industry.
Illinois legalized adult-use cannabis on January 1, 2020. Although it’s early days for this industry, it earned a whopping $39 million in January 2020 alone. Sales have been great in Illinois, but it’s facing a different issue than Oklahoma: black market cannabis.
Illinois severely limited the number of licenses available and instituted a hefty sales tax. That resulted in sky-high prices, long lines, and product shortages across the state. As a result, consumers turned to the black market.
Although Illinois will issue more licenses as the year goes on, black market cannabis still threatens the legal market. But as we’ve seen in Colorado, once there are more producers, prices and supply will stabilize. It’s the growing pain of embracing a new industry.
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