Wholesale Cannabis Markets Stabilize, But That Could Soon Change

STAMFORD, Connecticut—Market data research firm Cannabis Benchmarks has released its 2017 Mid-Year Wholesale Market Report. Data indicated that wholesale cannabis prices have stabilized and dropped, in 2017.

However, with California’s recreational market poised to come online in by January 2018, as well as likely to become the largest market in the country, experts speculate that a bumpy roll-out may make wholesale markets fluctuate wildly. Even with a smooth California recreational roll-out, its effects on wholesale markets overall are likely to be resounding.

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Forbes magazine retail cannabis writer Debra Borchardt wrote, “That consistency and stability are a welcome change to the industry buyers even though the prices are down 18.6 percent year over year for the first half. Last year, prices plunged in the summer when an oversupply from greenhouse growers flooded the market. This year it seems growers are selling in a fairly consistent manner and managing their inventory and cash flow more effectively. The buyers are also able to make purchases more consistently and a trend of smaller average deal sizes seems to have taken place.”

Market stability has been somewhat of a relief in the first half of 2017, but Cannabis Benchmarks CEO Jonathan Rubin told Borchardt, “Since California constitutes a significant portion of the nation’s legal wholesale cannabis trading, uncertainty about the future situation in the Golden State will weigh heavily on the U.S. Spot Index [for cannabis].”

Yesterday’s decision by Los Angeles City council members to move forward with controversial proposed regulations may further destabilize the wholesale, recreational, and medical markets in the city, likely to be California’s first or second largest market for retail.

The regulations would require cannabis manufacturers and growers to shut down by January while waiting for licenses to be issued from the city. A previous proposal that would have created a city registry for existing cannabis businesses and allowed them to continue operations, was scrapped in the current revised proposal.

Several other changes to the proposed regulations had Los Angeles cannabis business owners, advocates and patient groups crying foul, especially since a draft of the revised regulations was not made available until Friday, three days before the council’s meeting and decision. Now, councilmembers will review the proposal and vote on whether to send it to the city attorney for a final draft, before a final vote.

Another concern for California’s cultivators involves pesticide use and regulations around lab testing. Cannabis Benchmark’s report noted a drop in prices on outdoor cannabis, from $1,542 in the first half of 2016, to $1,133 in 2017, for the same time period. Increased standards for lab testing may put more pressure on outdoor cultivators. Decreased wholesale prices and increased compliance expenditures for some cultivators will further stretch revenues.

Reportedly, competition from black market sources and confusion as legal states thrash out standards and regulations are concerns for cultivators in legal states overall.

Data showed that while wholesale prices in Colorado and Washington state were down in 2017, California greenhouse and indoor growers saw an increase, at a high of $1,724 a pound. Rubin also told Borchardt that Cannabis Benchmark’s speculates the current year’s market bottom for November.

Borchardt also noted that fears of federal prosecution have largely been overshadowed by the challenges and changing climate of compliance in legal states. “So, it’s business as usual,” commented Borchardt.

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