According to a survey of retail stores in Washington state, the current wholesale price of cannabis has plummeted from $4 per gram in October 2015 down to $2.50 per gram in February 2016. That’s a 37.5% drop in only 4 months. In some cases we were seeing prices offered as low as $1.65 per gram, a 58.75% drop, and very rare cases where prices were $3.95 per gram.
We then took a survey of producers to determine the actual cost of producing cannabis and found that the majority of them had a cost of $3.04 per gram as a minimum and $4.50 as a maximum. One producer reported that they have stopped producing and started buying from others because it costs less to buy cannabis than to produce it. Several producers have gone bankrupt or sold their business.
After investigating the causes of these low prices, the following were revealed:
Supply exceeds demand: As you can see from this chart provided by the Washington State Liquor and Cannabis Board, production is very high and peaked with Fall harvest.
And this next chart shows that more cannabis was produced than was sold:
Demand is not increasing enough: The chart above shows how many pounds were sold to retailers. When we look at sales to consumers, we see an unsettling trend: Demand may be decreasing, indicated by dips in the following chart:
And finally, we can see a similar decrease in sales in this chart:
Why is demand so low? We found the following factors to be major contributors:
- Prohibition (bans) have reduced the number of retail stores so much that there are 3 producers for every retailer.
- Black Market prices have been able to remain competitive with legal cannabis due to the excessive taxes and price-gouging of legal producers by insurance companies, state licensing agencies, IRS, and a number of suppliers. The black markets are also able to thrive all over WA thanks to prohibition.
- Gray Market (medical dispensary) prices have been able to remain competitive or even lower than legal recreational cannabis for the same reasons as the black market in #2 above.
- Price Gouging by retail stores have driven consumers to the black market and gray market. Based on our calculations using the current wholesale price of cannabis, the retail price should be around $6.85 per gram. If the growers and retailers were paid a living wage, it would be around $10.96 per gram. If taxes were more in line with other sales tax, it would be around $8.80 per gram.