Changing Landscape

[dropcap class=”kp-dropcap”]R[/dropcap]ecent headlines have trumpeted that Colorado’s legal cannabis industry sold $1.5 billion of product in 2017. Not highlighted in that number, however, is a steep decline in the price of legal cannabis, from $2,007 to $1,265 per wholesale pound of bud from 2015 to 2018, according to data from the Colorado Department of Revenue. Anecdotal evidence suggests the decline has fallen below $1,000 per pound of bud.

Not surprisingly, this has been a bonanza for consumers. Retail prices for both adult-use and medical cannabis have dropped accordingly. Variety is now king, as stores and dispensaries cater to all types of consumers. Cannabis oil, sold directly to consumers or via edibles and vape pens, is now more popular, it seems, than flower. Large chains have arisen, with the five largest accounting for over 50 percent of sales. But small stores still have their niches, whether based on loyalty, product quality or otherwise.

 “Nevertheless, the number of retail cultivation facilities continues to increase, to 722 as of February 2018, an increase of 80 over the same date last year.”

The drop in price appears to have achieved one of the basic goals of legalization—draining the black market of profit. In 2014, when adult-use began, the black market flourished as the transition from medical to retail favored incumbents, and the state of Colorado required vertical integration (retail store owners were required to own their own cultivation facilities) until the fall of 2015. But since then, cultivation facilities have moved far beyond the warehouses of the I-70 corridor in Denver. Outdoor and greenhouse facilities in southern Colorado, especially around Pueblo, feed the Denver metro stores and other markets with inexpensive well-made product that high-cost producers cannot beat. At the end of 2014, adult-use plants in cultivation in Colorado numbered 200,000. By June 2017, that number had increased to 1,019,000. Nevertheless, the number of retail cultivation facilities continues to increase, to 722 as of February 2018, an increase of 80 over the same date last year.

The cost-pressures on the industry have been numerous. A red-hot warehouse marker in Denver in 2014 and 2015 is no longer so red-hot. Owners of cultivation facilities smaller than 25,000 square feet are desperate to sell. Some are unable to. Denver placed a cap in 2016 on the number of distinct cannabis locations in the city and required that number to decrease over time, which it has somewhat, mostly from cultivation facilities closing their doors. But even high-cost producers and incompetent owners have mostly managed to hang on, as even cultivation licenses have managed to retain some value.

Disputes among ownership groups, many of which were shotgun marriages when the state of Colorado began to formally regulate in 2010, spiked in 2014 and 2015 after the bump form adult-use sales. They have spiked again recently as owners fight over how to operate in an industry that, like most every other retail industry, is now consumer-driven.

A maturing industry in Colorado suggests even better times for consumers. What it means for those in the industry remains to be seen.