What’s one reason cannabis prices are dropping that no one is talking about? Processors are getting better at their job. If a processor can produce a preroll for $.10 cheaper due to innovation, that means it’s $.20 cheaper to a cultivator, and $.40 cheaper to the consumer. In a 28 pack of prerolls that would mean up to $11.20 off. Even with a tight 33% markup all the way down, the consumer still saves $6.30!!! This is what I mean when I say ‘natural compression’…. In a free market, competion forces savings from innovation to be passed on to the consumer. Cannabis is a brand new industry in terms of industrial scale, and a huge amount of savings will come simply from advances in processing efficiency. Now let’s say the process of the input cannabis drops by just $25 per lb (12.5%) - this means about $.055 in savings to the processor, $.065-$.11 savings to the cultivator, and $.13-.22 savings to the consumer. All in, on a 14pack, with just a slight drop in commodity prices and a slight boost in efficiency, the consumer might see savings up to $17.36. A lot of people might tell you this is a bad thing… In a free market, it’s simply the natural outcome. (In a limited license scenario, corporations have no reason to pass these savings on to the consumer, or to pass earnings on to their employees, becuase they have no reason to compete for either.)
Cannabis is a commodity like grains and oil and prices will continue to fluctuate with demand, innovation, cost to produce, etc. but it’s not necessarily a free market….yet. The difference is other industries have open markets to hedge price risk, cannabis isn’t there…..yet. Like those other products, producing cannabis has it’s break even point. But when the cost to produce exceeds the break even point there isn’t anything for the producer to do other than taking a loss, even when demand is high. Farmers and petroleum companies set the price to groceries stores and gas stations and they set the price to the consumer. In cannabis the retailer sets the price their willing to buy from the producer, and rarely do they pass the savings when available. Imagine cannabis prices to the consumer fluctuating like gas station prices. It is a new industry and learning how everyone can be profitable will take some time. Right now it’s an “everyone for themselves” market which creates price pressure, that won’t last forever.
Yep, we talk about it all the time in Cali…People always opine that once enough suppliers go out of business, the market will stabilize, but we always have to remind them that every grower who makes it through, every manufacturer, and even every retailer, is getting better and better at their job every year. So half as many companies can easily serve the same number of customers, so supply doesn’t actually go down ever.
I don’t know if this would be a large variable in the face of cultivator numbers and land availability rising rapidly… idk I’m not in the stats space for cannabis so I could say. I’d love to see numbers tho… Not a dig at you just a question of the theory really…
Market gravity will always create sediment.
With people like Nohtal Partansky driving process efficiencies and saving on labor hopefully pumping those numbers up (or down ;-))
true dat
garbage economy
Great perspective
Director Sales Operations @ Pacific Stone | Sales & Marketing Strategy, Distributor Mgmt, Trade Development
2moWell said Nathan