While mainstream businesses face increasing inflation and the prospect of recession, many adult-use marijuana firms, including retailers, growers. Other businesses, ancillary to them – are facing their own array of challenges. Prices are falling and a growing oversupply in established state marijuana markets are putting firms out of business. Prompting cuts and triggering an industry-wide scramble to remain in business. Colorado, Oregon and Washington state are among the most established markets in which wholesale cannabis prices have plummeted. Due to the fact that growers made more flowers than retailers could take in. The price drop has put an additional strain on cannabis farmers and retail stores.
The businesses that are associated with them are also in trouble as tech firms Akerna in Colorado. As well as Dutchie from Oregon and the delivery company based in California, Eaze recently eliminating employees. To make matters worse for cannabis-related companies. Marijuana products are often taxed at a more expensive rate than the other products like milk, corn and cars. In Washington state, taxes could account for almost 50% of the cost of marijuana-related products sold available in retail stores. This makes it more difficult for business owners to stay competitive or even be able to survive.
“My revenue has dropped month after month, year after year. We are to the point now where we’re just barely able to keep our doors open,”. Said James Lathrop, owner of Cannabis City, a marijuana retailer located in Seattle.
Responding to this, retailers are resorting to various strategies to remain afloat, such as:
- Offering consumers steep price discounts.
- Eliminating retail altogether to concentrate on cultivating.
- Innovating completely new businesses, such as the marijuana-themed bar, in order to bring customers back to their retail stores.
“It’s going well for almost nobody,” said Matt Walstatter, who has sold the owner of his Oregon shop, Pure Green, in the year 2019 to concentrate on cultivating.
“When I go to industry events, I don’t really talk about my business, because everybody is talking about how terrible it is and what a bloodbath.”
Below is a quick snapshot of the market, the conditions across three states.
Falling Prices Oregon
Marijuana businesses operating in this state have a difficult time with the influx of new companies opening their doors. Following the state’s voters legalized recreational marijuana in the year 2014. Oregon includes a state tax at 17% on cannabis-related products. Municipalities are allowed to apply an additional tax amounting to 3 percent. At first, there was no limit on the amount of retail licenses that the state could issue. According to Walstatter, the situation led to the oversupply of retailers. Which eventually led to the state having to issue a moratorium on all new licenses for cannabis in April 2018.
“The retail market here is really, really, really crowded,” Walstatter declared. “It was the case when we first started, people would drive by the stores and then come to our store. “And after a while it wasn’t that they were driving past two or three, it was that they were driving past 10 or 15.” As of the time of this writing, Oregon had 787 cannabis retail stores, as per the Oregon Liquor and Cannabis Commission. The population of the state is 4.2 million.
Walstatter stated that two retailers with high volumes were set up on the opposite side of his store shortly after the store began business, which made it hard to compete. He has observed several businesses that are similar to his sell their stores to multinational operators or shut down due to fierce competition.
The stagnant labor market isn’t helping.
“I was talking to one grower who we work with, and he has no employees left,” Walstatter told me. “He waters 600 outdoor plants himself every other day; he literally cannot afford help.”
Falling Prices Colorado
Following the time that Colorado was one of the states in the country to allow adult-use sales on January 1, 2014, companies were able to ride a steadily increasing sales surge for several many years. Sales – and prices are dropping. Businesses are closing their doors or placing their businesses on the sales block. The state has imposed an excise tax of 15% on the sale of cannabis products. Localities can also add the tax up to 2.9 percent. Although cannabis businesses in the newer state markets generally see growth in revenues, Colorado operators have suffered the brunt of a significant drop in the last year.
As per the Colorado Department of Revenue, the sales of marijuana in the month of April were $153 million. This is, which is a decrease of 25% from April 2021. The cost of wholesale cannabis flowers is lower – 43percent in the initial quarter of this year when compared to the same time last year. Colorado’s cannabis stores have also experienced a massive over saturation of their retail stores, and this has resulted in the closing of the seven Buddy Boy stores in Denver. The situation is just as challenging for growers.
Chris Becker, head of partnership and revenue for the Denver-based cannabis brand The Honeybee Collective, said that the cost of 1 pound of marijuana wholesale flower has gone down from $1,600 earlier in the year to around $800. “It’s been a tough year for cultivators,” said the farmer said. “Most people built their businesses around getting at least $1,500 a pound.” Cost of production ranging from $800 to $900 per pound, Becker noted that many small cultivators who have 3-500-to 5,000-square-foot crops are expected to go out of the market.
“I can’t see people growing in Denver for much longer,” said the Denver native.
John Andrle, owner of Denver cannabis retailer and grower L’Eagle Services, said the market suggests “some serious trouble for everyone in the industry, notably growers, but extending to stores, product manufacturers and more.” Marijuana crops are going at pennies per pound If they’re even selling anyhow, Andrle said.
“Stores aren’t faring much better, mostly because so many are for sale,” the author said.
He estimates that half of the shops in Boulder are up for sale.
Washington State
Marijuana-related businesses within the State are dealing with hefty tax burdens. Washington’s state approved medical marijuana use in 1998. Adult-use sales began in July 2014. It has an extremely strict limit on licensing which limits the number of retail licenses set at 556 which is well lower than the more than 800 retail stores that are operating in the neighboring state of Oregon. The population of the state, by contrast, is almost the same as Oregon’s which is 7.5 million. At a staggering 37 percent, the retail excise tax on marijuana purchases is significantly more expensive than Oregon and Colorado. “This is in addition to the regular state of Washington sales tax, which, in Seattle, is 10.2%,” Cannabis City’s Lathrop explained.
“So now it’s a 47.2% tax on a product that people can effectively grow in their closet if they want.”
Lathrop said to that even though he has lower competition for storefronts than retail outlets in states other than his, Cannabis City struggles to attract clients who prefer to buy on the market for drugs rather than pay the high tax. “The only people that are winning are the high-volume stores that happen to be in an area where they’ve had a monopoly for a while,” Lathrop stated. Cannabis City has been open since the year. However, Lathrop stated that he’ll be forced to shut his shop if the conditions do not improve.
He even has an establishment that is themed around cannabis that serves beer because marijuana bars are not allowed in Washington state. It’s an effort to bring customers towards his shop. However, it’s been to nothing.
“I’m on the edge of, do I go bankrupt?” Lathrop declared.
“Do I have to sell my shop and then walk away empty-handed after 8 years in the business? But can I still be successful?”