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Crash or Cash: What’s Happening to California Cannabis Prices?


SAN FRANCISCO — At a high-end dispensary in San Francisco, the self-proclaimed center of all things disruptive, staffers are debating if the time is right to unleash onto the market something never before seen, something they believe could revolutionize California’s multibillion-dollar marijuana industry.

They’re wondering whether they can charge $90 for an eighth of an ounce of cannabis—and if customers will still buy it.

“People don’t blink at $75 an eighth,” said one of the dispensary’s buyers, who requested anonymity in order to speak freely. That, in turn, is fueling the high-roller’s urge to push the stakes even higher. “Is $90 an eighth insane?”

Market forces in the country’s largest marijuana marketplace are still very much adapting to the new legal era.

Square this scene, if you can, with the doom-and-gloom scenario described last month just 90 miles away from the “how high can we go” casino game, in the state capital of Sacramento. At a panel meeting, Hezekiah Allen, executive director of the California Growers Association, proclaimed that the marijuana industry is sliding towards an inevitable bust.

“It’s a circus. Legalization is not going well,” Allen told Leafly in a recent interview, ticking off his reasons why. “There are way too few retailers in the state. The regulated market has actually contracted, while, at the same time, regulated supply has expanded.”

Then he dropped the bombshell. “I think our oversupply problem,” he said, “is worse than Oregon’s.”

Barely six months into the era of retail cannabis sales in California, a few things are clear. Investors are still pouring money into the state’s multibillion-dollar cannabis industry, entrepreneurs are still launching new brands, and existing cannabis businesses are still trying to hang on—all with varying degrees of success.

In other words, market forces in the country’s largest and oldest marijuana marketplace are still very much adapting to the new legal era. And at this still-early stage, there is enough uncertainty for vastly different messages to be preached simultaneously—one that envisions the state’s cannabis market crashing out, and another centered around industry operators cashing in.

So which way is California headed? Record-breaking retail prices that leave consumers pining for the bygone days of medical marijuana’s gray market? Wholesale prices so low that growers are forced into foreclosure as big brands dominate the market?

Could it be both?

California’s Complicated Cannabis Hierarchy

The stark contrast in market predictions reflects the level of uncertainty in California’s newly legal cannabis market, as the state adjusts to state-regulated sales and prepares to institute a tracking system aimed at following every crumb of legal cannabis from seed to sale.

It also reflects the multitudes within the market itself, and the vast gulf that can divide businesses ostensibly in the same industry.

Yes, observers and growers point out, California does produce far more cannabis than the state’s consumers could ever consume, as a study commissioned in 2016 by the state Department of Food and Agriculture pointed out. But that data, some of the only hard figures available, misses the point: Much of that cannabis was never intended for the in-state market in the first place. Exact figures vary, but there seems to be near-universal agreement that growers in California supplied most of the country’s black-market marijuana.

To say California has a cannabis surplus is oversimple.

There’s also still no universally agreed upon figure for the size of California’s appetite. The state has 39.5 million residents and another 250 million annual visitors, meaning the market patterns in Oregon and Washington, with fewer people and fewer visitors, may not be replicated here. “There is a much deeper reservoir of customers than there are in Oregon, let alone in Seattle, to purchase cannabis,” said Sean Donahoe, a Bay Area-based cannabis consultant with clients across the Golden State. “We have a much more balanced marketplace in California.”

To say the state has a cannabis surplus, in other words, is oversimple. It also ignores key differences within California cannabis production.

First and foremost, not all marijuana is grown equal. Most of the rapid expansion in production capacity in recent years has been among large-scale greenhouses or outdoor farms, such as those in Monterey and Santa Barbara counties. That cannabis is most likely headed to the extract market, to be used as oil in vaporizers or edibles. It thus commands a much lower price than products grown indoors from proprietary genetics. It’s this connoisseur-grade cannabis that would become the $90 eighths sold to scooter-riding hipsters in San Francisco.

To Read The Rest Of This Article By Chris Roberts on Leafly

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Published: June 6, 2018


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