Cut-Rate Cannabis

[dropcap class=”kp-dropcap”]I[/dropcap]f you’ve been into any cannabis retailers in Oregon lately, you’ve probably noticed that cannabis prices are low. In fact, Portland has some of the cheapest legal cannabis in the U.S., with eighths selling at an average of $30.60 in June 2018, according to a report by Wikileaf. So what is driving the cost of cannabis down in Oregon?

A new report by the Oregon-Idaho High Intensity Drug Trafficking Area (HIDTA) points to the overproduction of legal cannabis as a reason for the low cost. Simple rules of supply and demand are leading to a good situation for cannabis consumers, but a disastrous situation for cannabis producers and retailers. The report founded the following facts:

• Oregon is estimated to produce over two million pounds of cannabis annually, while Oregon cannabis consumers are only estimated to demand 186,100 to 372,600 pounds of cannabis annually.
• Based on international pricing, Oregon’s cannabis crops can yield approximately $6.7 billion worth of cannabis each year.
• Following the legalization of recreational cannabis in Oregon, it’s estimated that there are 417,000 active cannabis users in Oregon.
• There is currently one cannabis grow site for every 25 users in Oregon.

This data indicates an issue of overproduction of legal cannabis in Oregon. But how is this affecting cannabis producers and retailers? Is it as dire as it sounds? Lee Henderson, community officer of cannabis producer HiFi Farms outside of Portland, gave CULTURE the scoop on how the issue is affecting his business, as well as the marketplace as a whole.

“The effect that it has had on my company has mostly just been the price. The prices have dropped from $2,400 a pound in 2015 to $1,000 a pound in 2018. That’s a huge drop,” Henderson explained. “We had some of that price drop built into our business plan, so we were probably more fortunate than some other people who didn’t see that coming. Industry-wide, we felt that it was coming, but when it came, it didn’t feel like anyone was prepared for it. It seemed to happen overnight at the end of last year.”

“We had some of that price drop built into our business plan, so we were probably more fortunate than some other people who didn’t see that coming.”

Sound business planning has helped HiFi Farms remain profitable despite huge price drops, but Henderson can see how other producers may not.

“As far as how I’d imagine, it’s affecting other smaller, less-established companies, I’d imagine that fighting for shelf space is a gigantic problem. There really is so much competition. So many companies, and so much wholesale flower out there,” Henderson said.

Another factor contributing to overproduction and low prices is a black market that is still thriving in Oregon.

The same report by HIDTA gave a snapshot of Oregon’s illicit cannabis market. The report found that over 26,500 cannabis plants were confiscated off public land in the state during 2016. It also reported that law enforcement investigated at least 64 illegal cannabis labs from July 2015 through January 2018, as well as Oregon cannabis products being sold illegally online.

While Henderson didn’t know of anyone who was participating in Oregon’s illicit cannabis market, he did acknowledge it was an issue. It’s one he thought of as self-defeating.

“It’s a paradox. While I think cannabis should be legal everywhere, I think legal cannabis producers who sell on the black market should be punished. They’re not doing themselves any favors, and they’re definitely not doing the industry any favors,” Henderson concluded.

Although Oregon’s cannabis marketplace is still a work in progress, there is hope that it has the potential to evolve into an industry where cannabis consumers get value, and cannabis producers and retailers can still profit. When and if this happens, the black market will inevitably become less lucrative, and both problems will be solved.