Every high has a peak that must come down. Legal cannabis swept through the United States throughout the last decade, creating record sales many didn’t think were possible…
But has this green rush come to its end?
Since Colorado legalized recreational cannabis, it’s seen a $7.6 billion profit. ¹ However, wholesale markets have been grappling for stabilization and, in turn, many who initially entered this industry with high hopes are now finding themselves jobless.
In 2018, Colorado saw its highest number of licensed retail growers (a total of 744 according to data from the Colorado Department of Revenue’s Marijuana Enforcement Division). Due to the number of people harvesting cannabis, the market rate decreased to a point where it cost more to grow a pound than you could sell it for.
Not to mention a number of state regulations that were put into place – such as mandating pesticide testing and microbial contamination testing – which only worsened the problem. ²Josh Monroe, the owner of Fat Face Farms in Denver, told The Denver Post, “You have to be agile and able to adapt quickly to the really rapidly changing environment.”
These words were spoken as he was trying to sell his 6-year-old indoor cannabis operation to one Cannabis One Holdings – another monopolizing big agriculture of the cannabis industry.
Once 2019 came to a close, Colorado’s cultivation licenses had dropped 8%, leaving 683 still in operation. And, with that, many are claiming the Green Rush which prospered throughout the last decade is now coming to a close.
Good News for the Consumer, Bad News for Small Businesses
The price of cannabis per pound has been steadily dropping over the last few years. In turn, many consumers are finding their cannabis is available at cheaper and cheaper prices. This may seem like great news – and for those who just want to get high, we guess it is – but there is a darker side to this matter.
Small business is inevitably being pushed out as they can’t afford to keep up with production costs at such low sale prices. Beyond production, states such as Colorado also mandate a number of taxes and fees for growers which, in many regards, has gotten to the point of being ridiculous.
Fluctuation in wholesale prices is quite common in this industry. Farmers are well aware that they may make more or less from a year’s harvest and are smart about financially planning ahead of time. However, sometimes, unexpected events can falter these plans.
For example, this past October (known as “Croptober” among cultivators) there were two major issues.
1. An early freeze led to a number of plants either having to be plucked prematurely or abandoned altogether.
2. There was a heavy crackdown on illicit operations, putting those who are following the rules at risk of being suspected.
Not to mention, the marketplace is changing as well. Traditionally, when cannabis was only available for medicinal use, people would go to a dispensary to purchase their flower. Nowadays, customers have the option of purchasing cannabis online and having it delivered directly to their homes.
Though there are a few exceptions, the majority of strains being grown are likely to fetch whatever the average market rate is. Due to online shopping, cannabis consumers are well aware of this and digitally hunting down the best deals. As mentioned, this market rate is so low, small-time growers are having a difficult time managing their cultivation operation while reeling in a profit
Since these growers can’t raise their prices – as they may be able to if they were a local dispensary catering only to the community – many are being priced out completely by big cannabis corporations.
Still, even beyond these problems, the cannabis industry always had the reputation of having thin profit margins. This is mainly because the federal government still views the plant as a Schedule I substance and prohibits cannabis businesses from receiving tax deductions other businesses are given. 4 Not to mention, there regularly seem to be new rules applied for additional testing – leaving those trying to make a buck paying more and more fees.
Still, Pot is Too Big To Fail.
With the above information, some may assume that cannabis holds the potential to crash. Even the statistics seem to point in this direction. In the second quarter of 2019, publicly-traded cannabis companies saw a double-digit loss. 10 of the top cannabis stocks which had a combined value of $55 billion lost an estimated $21 billion. 5However, though these losses are telling investors to be wary of inflated valuations, they aren’t going to undermine the cannabis industry as a whole. The fact is, cannabis is simply too big of an industry to go under.
The polls have been tallied and a growing majority of Americans agree that cannabis should be legalized. Of course, alongside this, the number of states that approve legalization is also climbing. As more states join the market, the market opens up for new opportunities.
And total U.S. marijuana sales remain projected at $30 billion by 2024. This makes cannabis the biggest investment opportunity of our times.6Still, even with these hopes, it’s almost certain that the Green Rush is over as much of the hype behind marijuana is boiling down. To give a comparison, consider Black Friday shopping. You’re not necessarily checking out your options to see where the best value is, you’re buying as you please – almost in a frenzy.
The same thing happened during the Green Rush. People saw that cannabis was legal, jumped onto the bandwagon, and – once everyone got high enough – the tension of this new legal frontier started to die down.
In the financial world, many American investors took to Canada’s cannabis market as there were no federal prohibitions against the free market. These investors made market caps incredibly inflated and too many cannabis companies were taking big risks with other people’s money. The investors are now suffering the losses.
The bubble has burst.
And this is probably for the better. As companies are now put in a position where they must set priorities and focus on keeping this industry alive.
Hope on the Horizon
“The cannabis industry gets this reputation that it’s a business that’s flush with cash and creating marijuana millionaires,” Mike Lord, director of business development of LivWell, told The Denver Post. “It’s a hard business like any other business.
”Though many indicate the cannabis market is bound to fall, there are a few who continue to hope for the best. Lord is one of them and he’s got his eyes set on a 2019 law that allows cannabis operations to be publically funded. 7 This law has already helped some businesses out, like Denver’s Medicine Man which now runs and operates a number of independent dispensaries and product manufacturers.
However, many cannabis businesses and farmers are waiting for changes on a federal level. Recently, an initiative known as SAFE Banking Act was introduced that would allow marijuana businesses to gain benefits from bank services, such as loans. 8 If this goes through, there’s no doubt it would have positive implications for local businesses trying to keep afloat.
But until then, all people can really do is hustle it out and hope for the best. There is one positive side to the Green Rush’s end that is often overlooked. As legalization swept the nation, a bunch of money-hungry entrepreneurs took their attempts in this market. If sales finally stagnate, we set our focuses on safeguarding the future of cannabis rather than pillaging for profit.
Written and Published By Paul James In Weed World Magazine Issue 146