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How will the industry bounce back after the wholesale cannabis price crash of 2018?

Jun 10, 2019

Last year, cannabis farmers across North America saw the prices of their crop fall as low as $800 per pound in some states. Oregon experienced the worst fallout from the price crash. The state produced more than two million pounds of marijuana in October 2017, more than local dispensaries could sell, a glut that can be traced back to the unlimited amount of licenses Oregon was issuing at the time. But they were not alone. Cannabis markets in other states experienced similar negative side effects from the wholesale cannabis price crash of 2018.

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According to Cannabis Benchmarks, the average price of cannabis flower at the end of 2018 was a little over $1000 per pound. Compared to current average prices, which are now sitting between $1200 and $1300 per pound, many states were missing out on the valuable tax revenue the legal cannabis industry is known to rake in. The Washington Post reported on Colorado’s market last November when even a five percent increase in their marijuana tax rate could not save their market from the price crash.

How states can save themselves from the price crash

Some states are changing their approach to the cannabis tax in light of the 2018 crash. Where it is usually the norm to set taxes as a percentage of the price, state governments are now looking at taxing cannabis by weight in order to protect their own bottom line. California has implemented this type of taxation since they first legalized the market, and Maine also started taxing their homegrown cannabis by weight rather than price. At the writing of this article, Alaska is the only other state to tax on weight, requiring only growers to pay the tax while consumers absorb the cost by paying higher prices in their local dispensaries.

Growers are the ones facing the most challenges when it comes to the cannabis supply glut and consequential price crash. Although wholesale prices are slowly climbing, with excise tax profits climbing ten percent above last year’s numbers, cannabis cultivators were still at a loss as to what to do with their leftover supply. For Oregon, that was over one million pounds of excess marijuana the legal market did not know what to do with.

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As it is still illegal to ship marijuana across state lines, many farmers are turning to the black market to effectively sell their product and turn a profit. To counteract this illegal activity, the Oregon-based company, Craft Cannabis Alliance, launched the ONE Fix Campaign, a piece of legislation that is urging state senators to approve an interstate transfer license that would make it possible for Oregon’s cultivators and growers to ship product across state lines and into other legalized markets. On May 15, the bill was approved by the Oregon State Senate and will be moving into the State House.

“People want to call this an oversupply problem, but it’s actually a market access problem, and a political problem,” explained Adam Smith, Director of the Craft Cannabis Alliance, in the association’s blog last month. “The solution is to legalize licensed interstate transfer and allow legal markets to work.”

How growers are competing within a saturated market

In the meantime, the growers and cultivators are looking for ways to upsell the cannabis that is already being grown. Things like “organic pot” have been marketed in dispensaries all across the coast with consumers willing to pay more money for a higher quality product. State-run quality tests and inspections are inspiring many growers to start using more organic practices to appease both state officials and local consumers who are demanding organic products.

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Thanks to the industry’s growing understanding of cannabis, its terpenes, and its psychoactive properties, consumers are now able to request certain luxuries from their dispensary. There is a rise in demand for local, natural, and organic products, and people shopping for marijuana are more likely to ask where the flower is grown and how oils are extracted. According to BDS Analytics, the 2019 cannabis consumers will be focused on where and how cannabis is grown, manufactured, packaged, and ultimately consumed, leading many cannabis companies to embrace a more organic approach that comes with a heftier price tag.

Steeper prices for organic products will not directly fix the significant price drop the industry has seen over the past two years, it is a sign that market trends are starting to change. While large indoor grows with strictly regulated growing cycles are the norm, it is also what’s leading to the oversupply and, ultimately, the lower wholesale prices the working members of this industry are seeing. With a focus on a more natural product, growers will be forced to rethink their approach and hopefully slow down the current over-production of cannabis.

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