3 minute read
Cannabis Surplus Smoke
Striking the right balance in the bud economy is crucial. A surplus occurs when the quantity of marijuana in the market exceeds the quantity demanded by consumers. The imbalance is indicative of a struggling industry looking to strike the right balance to protect profits while investing in social equity entrepreneurs. Trapped in the borders of the state due to federal laws prohibiting interstate commerce and transport leaves business owners and industry experts wide open for creative problem solving. Public pressure on Congress for federal legalization would be ideal, yet it appears as though cannabis legalization still brings with it mixed support.
California
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Favorable growing conditions coupled with expert growers at first sounds like a favorable situation. However west coast weed giants in California are all but stoked because there is just too much weed to toke. The state’s 37% tax rate makes it increasingly challenging to turn a profit, with the legacy market thriving legally operating businesses. The state also reportedly had an 8.2% decrease in sales in 2022 from the previous year, showing the economics of the marijuana market is more predictable than not. Without ways to relieve the pressures for growers, manufacturers and retailers, the small businesses and big will surely go bust.
Oregon
The downward spiral of prices is evidence of the weak market for marijuana in Oregon. Since 2016 the industry has seen a steady decline in the cost of weed going from $10.5/ gram to $4/gram early 2023. While lower prices favor buyers and provides some relief during a period of inflation, businesses on the other hand are not able to afford to operate under such weak market conditions across the supply chain. The industry saw a 17% decline in pot purchase from 2021 greater than that of California and further demonstrating that even more mature markets are susceptible to the pressures of this mixed legislative market. Some companies have cut their losses like Curaleaf which announced closing of business in Colorado, California and Oregon as well as reducing their workforce by 4%.
Michigan
In December of 2022 the record low prices were crippling small businesses after dropping 50%.At any time in the Great Lakes state there can be upwards 1.5 million marijuana plants. Only a fraction of the 1,733 communities allow the sale of cannabis, concentrating competition and driving a price drop competition between bud businesses. In 2020 an ounce would run customers $393, in 2021, $204/ounce and by September of 2022 about $110 according to the Michigan Cannabis Regulatory Agency, a 73% decrease in just two years.There is still room for the prices to go lower but buyers are helping the state sell with record revenue despite the surplus. With more growers than retailers to sell to, the market is still stabilizing and despite the volatility and challenges of recouping investments not many businesses are closing their doors.
New York
Retail woes have inspired a novel solution for the newbies to cannabis. NY has been overcoming the adversities of surplus and complex regulations quite consistently. A recent initiative announced this past July was approved by the Cannabis Control Board allowing a minimum of three growers to consolidate their products for sale outside of dispensaries at local, adult centered events like festivals with municipal approval. The state has the luxury of watching other states be inactive on problem solving through creating pathways that deviate from the initial laws. Governor Kathy Hocul also doubled down on supporting the legal indus- try through signing a law increasing civil and tax penalties for illicit and unlicensed cannabis companies. The state has a nation-leading model and is rapidly responsive to protect the investments and profits of their nascent market.
Oklahoma
A recent study in the past month unearthed the state’s marijuana industry as anything but OK as it produces 32 times more weed than it actually needs. While Oklahoma City was named in the top 100 most loved destinations in 2021, their cannabis surplus hasn’t driven tourists to the sooner state. The study found that there is 64 grams of marijuana for every 1 gram demanded. Oklahoma’s cannabis supply and demand ratio has been for the most part consistent. There is so much weed in the okie dokie that it would benefit from interstate commerce. Complicating matters is the mislabelling of cannabis products as safe. Scale Laboratories license was immediately suspended as nearly 100 products on retail shelves were recalled due to failed secondary contaminant tests.
As Illinoisains continue to press forward to open craft grows, the state as of the publication of this article, has not reported a surplus of marijuanna. Traceability allows for the state to see how many plants are being grown giving regulators an opportunity to essentially get in front of a situation in which there is too much product. In May of 2023, Illinois’ Cannabis Regulation Oversight Officer announced Metrc as the new seed to sale tracking system departing ways with BiotrackTHC. While craft growers are still not opening doors due to challenges in raising capital there has been little conversation on yields and potential quality of products from first time commercial scale growers.
