Colorado Cannabis Prices Falling
The wholesale price for marijuana has dropped from $2,000 to $1,300 a pound in Colorado, according to an analysis from The Economist.
Lower prices for dried cannabis are likely to mean lower margins, unless the cost per gram to produce marijuana has fallen by more than 35% over that same period.
Colorado was the first state to legalize and sell recreational weed, so why the drop? While it does have some to do with tourists, as peak prices were observed during the ski season, there are other factors at work.
The Economist attributes an expansion of supply and an increase in competition as a result of Sessions' mostly being all talk and no action.
But it’s likely that big businesses are up to their usual tricks again.
Colorado extended a suspension on growing license issuances last year which had no limits on the number of plants that could be grown, allowing companies which had already acquired a license to maintain control. There was no rules to stop big business from buying as many licenses as they wanted, allowing a few larger players to purchase a majority stake in the Colorado grow market.
Now, if you're a big business and you want to eliminate your smaller competition, one way is to slash your prices and undercut competition. Yes, this lowers margin, but you have a lot more money than those puny companies. Once they’re pushed aside, you've can control more market share and demand a higher price point for your product.
Big Business in Colorado is conquering smaller businesses by flooding the market with dried cannabis. This may seem like a win for consumers in the short term, but anti-competitive tactics can substantially increase prices over the long run. While investors will be pleased, it's not such good news for consumers.
This is happening in other places too. Canada’s pot industry looks like it will be dominated by just a few larger businesses.