A CommCan employee trims flower while working in CommCan’s processing facility. In Massachusetts, the price of recreational cannabis products has dropped significantly in recent months.
Recreational cannabis has never been cheaper in Massachusetts than it was this year.
Prices have been steadily decreasing for more than a year, and those running businesses in the burgeoning industry expect them to keep dropping. While customers may be rejoicing over greater access to marijuana, the lowering of prices has some concerned about the ramifications for cultivators, small businesses, and the employees that make it all run.
Examining cannabis prices and the reasons they have decreased so significantly offers a peek into the state of an industry at a crossroads.
Cheaper than ever
In October, the average price for a gram of flower (the buds of the cannabis plant that are typically ground up and smoked) dropped to $7.76, an all-time low, according to the most recent data from the state’s Cannabis Control Commission.
The average price for a gram did rise slightly in November, back up to $8.04. Still, that was below September’s average price for a gram of flower, $9.17. The average price in September was also an all-time low at the time. So was the average price in August.
Cannabis prices stayed relatively consistent from late 2018, when recreational sales began, through 2019, 2020, and most of 2021. The average price for a gram of flower did drop to $9.74 in April 2020 as the pandemic upended business in a number of ways. But prices shot back up, hovering above $14 for a gram until June 2021. Prices decreased every month since then, with the steepest drop coming between September and October of this year.
Recreational cannabis sales revenue is also going down. Adult-use marijuana sellers in Massachusetts brought in $112.2 million in November, the lowest amount since February of this year, according to data from the CCC. Sales numbers peaked in July, with $132.4 million earned. Sales revenue fell steadily through the fall, but a significant decrease occurred between October and November.
A plethora of pot
The simple explanation for these startling numbers is that the state is experiencing an oversupply of cannabis, spurred by an uptick in cultivation licenses.
“There’s an extreme oversupply of flower, edibles, concentrates, vapes, basically any cannabis product,” Joseph Lekach, CEO of cannabis company Apothca said.
When the industry was in its infancy, the licensing process in Massachusetts was very slow, said Brandon Pollock, CEO of Theory Wellness. Due to staffing shortages and other factors, getting applications approved took longer, which led to a backlog of applications. Prices remained very high for a long time because there were only a few cannabis producers in the state. All marijuana being sold in Massachusetts must be grown in the state, as discrepancies between federal and state laws prevent it from being shipped across state lines.
On top of the initially slow licensing process, simply constructing cultivation facilities takes a long time and a lot of money, Pollock said. That’s not to mention the time it actually takes to grow the crop.
Over the last year, Pollock said, dozens of new cultivation facilities have opened and are trying to sell to the market. This led to the current imbalance between supply and demand.
“The last 12 months have been fairly drastic. I’d say on the wholesale market, prices might be down approximately 50% in one year, which is, for folks that are only on the cultivation side of the business, especially difficult,” he said.
The Stoneham-based Theory operates dispensaries in Great Barrington, Chicopee, and Bridgewater, as well as four locations in Maine. The company is expanding into Vermont soon, and Pollock said he is exploring options in New York and New Jersey as well.
Theory also operates a small cultivation facility in Massachusetts, which sells to some wholesale partners. Generally, most of the product sold in Theory dispensaries is created using the company’s own manufacturing and growing operations.
Pollock said that Theory prices its own product as a high-end brand, and those prices have remained relatively stable. At the bottom of the market, he said, lower-quality products have become considerably cheaper.
“A double-edged sword”
While customers may be excited about cheaper prices, the quality of cannabis products could decrease noticeably as businesses navigate a new reality.
“A year and a half, two years, three years ago, it wasn’t good either. It was unbalanced to the high side, now it’s unbalanced for the low side. So this is temporarily good from a customer’s perspective,” Lekach said. “But a lot of manufacturers and cultivators will cut costs wherever they can just to stay alive. You’re going to have an inferior product coming out. It’s a double-edged sword.”
Lesser products are not the only concern Lekach has. Apothca, which operates three retail dispensaries in Massachusetts and one in Oregon, is doing well, he said. But smaller outfits could be in trouble.
“We have no idea where the bottom is going to be. I think that there’s a lot of companies suffering because of this,” Lekach said. “I think you’re going to see a lot of companies going out of business probably next year and into 2024.”
On Tuesday, Boston Business Journal reported that The Source, a Northampton dispensary, will become the state’s first cannabis retailer to permanently close since recreational shops opened in 2018. Leadership at The Source did not specify their reason for closing.
Worcester-based Major Bloom is a smaller company than both Apothca and Theory. It operates just one retail location and does not have a cultivation facility.
Ulysses Youngblood, president and co-founder of Major Bloom, said that his team knew this price drop would be coming, and planned for it as they opened their retail location just over a year ago in a low-income neighborhood of Worcester.
“I know there were people saying that cannabis was expensive a year and a half ago… part of our model was to be economical when we opened up our retail doors. That’s why for us, it’s not a drastic change, it’s the market correcting itself in a way that it should be, which is more affordable for people,” Youngblood said. “We knew this was going to happen. It happens in all other markets.”
Both Lekach and Pollock said they also expected prices to drop, but were moderately surprised at how quickly they fell off this year.
Lekach added that he is worried about the ramifications of these trends on workers, and has heard those in the industry talk about the likelihood of layoffs. Apothca has avoided those measures to this point, he said.
Another reason for concern, Pollock said, is that there is “really no limit on licenses at the state level,” and continued speculative investments in the industry could lead to even more cultivation and a greater oversupply of product.
Officials and business leaders should look to Oregon for guidance, Pollock added. Officials there issued a moratorium on new cannabis licenses to deal with similar oversupply problems.
Lekach also supported the idea of a moratorium.
“We would have to figure out how social equity and economic empowerment fit in those lines, but for regular licenses, I would take a moratorium approach, not issue anything for a while, and see what happens,” he said.
This move might also be needed to stop the flow of cannabis into the illegal market. When cultivators are under the kind of financial pressure brought on by these issues, Pollock said, they could be pressured to try to sell in the unregulated market.
Youngblood said he has already heard of an abundance of marijuana in the unregulated market and, interestingly, prices for illegal marijuana are now sometimes higher than prices in dispensaries.
Major Bloom’s mission statement is “weed for the working person.” Youngblood said he is optimistic about the future both of his company and of the cannabis industry as a whole in Massachusetts. Many problems need to be solved throughout the supply chain, but Youngblood said he is glad that the average consumer can benefit from cheaper prices.
“I think it’s best for the consumer. I don’t believe in a pre-roll being $16 to $20,” he said. “My initial reaction is that this correction is the way it should be because consumers are benefitting from it. And that’s what we do it for, to serve people. Sometimes that gets lost.”
H/T: www.boston.com
