It's Not Just Banking And Regulatory Hurdles: Sinking Weed Prices Are Existential Problem For Cannabis Industry

Cannabis' Schedule 1 status and lack of access to banking services are two of the most significant problems facing the industry, but there’s another problem that seems to be getting bigger every year – declining weed prices.

Marijuana banking reform now has slim to no chance of becoming law in what remains of the lame-duck session, especially after the SAFE Act was left out of the omnibus package. As such, many in the industry are focusing on regulatory challenges to be faced in 2023, one of which is reflected by the precipitous drop in marijuana prices.

The illegal market is still thriving in many legal states, placing pressure on legal pot sellers to keep their prices competitively low. With both retail and wholesale prices dropping and growers failing to establish the correct balance between supply and demand, the industry can expect a variety of challenges.

“The industry today is facing a number of headwinds. The most existential is pricing,” said Rick Maturo, director of insights and intelligence for cannabis-data firm BDSA, during a webinar last week, reported Bloomberg.

According to BDSA, the retail price of a gram of cannabis has fallen 13% to $9.43 in the third quarter of 2022 from $10.83 in the same period year ago. This is one of the sharpest falls in 12 months, the market research firm revealed.

Things are even worse when it comes to wholesale prices in more developed legal markets, like Colorado, where the average price per pound has dropped a whopping 51% since the fourth quarter of 2020. In Oregon, prices dipped by 36% in the same period

The Pandemic's Role

What has caused this huge price decline?

While the illegal market is making the most of the situation, it can’t be the only element to blame for these industry problems, so what’s another culprit?

According to Maturo, the Covid-19 pandemic and related lockdowns also played important roles. It can be assumed that the industry expected that people who began consuming marijuana during the pandemic or were consuming more than normal would continue to do so when the crisis ended. Unfortunately for marijuana growers, that didn’t happen and this resulted in an oversupply of raw cannabis.

Bank of America analyst Lisa K. Lewandowski also recently highlighted that the biggest headwinds the industry will face in 2023 include: oversupply, heavy taxation, economies of scale, an inflationary environment, capital challenges, and slow regulatory progress.

BDSA noted that states with the oldest legal markets are getting closer to “peak weed” with lower prices resulting in tight margins, making them less attractive to new consumers. Per the company’s data, the compound annual growth rate from 2022 to 2025 is projected to be only 1% in Colorado and 2% in Oregon. By comparison, New Jersey and Missouri, which have nascent adult-use cannabis 

markets are projected to see 35% and 37% growth respectively.

Photo: Benzinga Edit with sources from Madison Kaminski and Budding on Unsplash