Legal Marijuana Supply Glut Driving Prices Down
The supply of legal marijuana has turned into a major problem for growers as prices deep dive, but it is a clear opportunity for companies that refine the plant and manufacture products derived from it.
A report Monday revealed that in Colorado, the average price sought by wholesalers has fallen 48% to about $1,300 lb since legal sales to all adults started in January 2014, according to Cannabase, operator of the state’s largest market.
Supply is spiking as growers expand and install the latest agricultural technology and illicit growers come out of the shadows into the main supply line.
“Anybody that is investing in this sector or starting a business in this sector needs to be doing so with the understanding that the price of cannabis is going to drop precipitously,” said the CEO Oakland, California-based Arcview Group, a marijuana investor consortium. “The agricultural technology space is already booming, and now they get to lay their hands on the cannabis industry.”
The focus on efficiency can cut production costs for some indoor growers to less than $300 lb from more than $1,000, said a vice president at Urban-Gro in Lafayette, Colorado. Urban-Gro sells machinery originally developed for tomato greenhouses, such as automated feeding, watering systems and high efficiency lighting.
If you want to compete in a price war you have to use the best technology to do it, and it is not cheap.
Scotts (NYSE:SMG) has been on a buying frenzy over the past 2 years, buying leading companies that provide specialty fertilizers, lighting and other supplies for hydroponics, the indoor method of growing crops favored by US cannabis cultivators.
Retail prices also are diving.
Marijuana shops in Colorado collected an average $6.61 per gram in November, down 25% from Q-1 of Y 2014, according to BDS Analytics
Analysts forecast that the regulated market in North America could 3X to more than $20-B in 5 years, from $6.7-B in Y 2016.
California, Maine, Massachusetts and Nevada legalized adult recreational marijuana use in November, and Canada’s plan to legalize marijuana this year also will contribute to increased growing that will drive the both the wholesale and retail prices further South.
Again, the drive toward efficiency is not cheap, so expect the industrial operators to enter the cannabis growing business very soon.
Big Ag and Bg Pharma recognize the Big Q surrounding the US cannabis industry, that is President-elect Donald Trump’s choice for US Attorney General, Senator Jeff Sessions (R-AL).
Senator Sessions is a marijuana foe.
However, it remains to be seen if President Trump or the GOP controlled Congress will will challenge the states that have legalized the drug or will make it a state’s rights issue.
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