We’ve never seen anything compared to North America’s new legal marijuana industry. Not even the television or Internet booms can compare to the growth of the green giant.
According to Arcview, average annual marijuana sales from the past couple of years are estimated to be around $7 billion and projected to keep going up to over $20 billion in the next few years. With so many people buying marijuana, farmers should be doing great, right?
The truth is that pot prices are dropping fast and it’s thanks to legalization. While quality weed that’s affordable is great for cannabis consumers, regulations and industry consolidation are squeezing small farmers out. The only thing that keeps them in the game, and in business, is the limit on farm size, for now.
Regulations and taxes have made it a huge struggle for small farmers to turn a profit in places like Oregon. Imagine putting your retirement fund into a cannabis start-up expecting to get $1,500+ per pound, but by the time harvest rolls around your product isn’t fetching half of that price at market.
Small farmers are stressed about getting a good price for their product. After spending all year shelling cash out of pocket to grow their crops, it hurts to watch the price point drop and drop. What makes it even worse is that the smallest mistakes in compliance can bring a small business to its knees.
The only way the marijuana can be brought to the legal market is if it’s pesticide free. Imagine a few family farms growing near a commercial pear orchard. If that pear orchard is spraying pesticides in the air there’s a high chance that those cannabis crops are going to get contaminated.
If so, those families aren’t going to have any crops eligible for the market. What should they tell to their investors who are out hundreds of thousands of dollars?
One of the biggest forces driving down prices is the number of growers getting in on the game at once. In places like Oregon, the state was flooded with producers growing marijuana that could only be bought and sold within the state. If you know anything about supply and demand you know what happens when the market gets flooded.
After just a few seasons post-legalization, weed prices in Washington dropped about 77%, going from $38/gr. to $7/gr. Experts say price decline, industry consolidation, and market expansion are only going to continue in the coming years.
The regulations that most states implemented when they went recreational included licensing producers into different size farms. The unforeseen yet predictable outcome was that big recreational producers ended up taking over the lion’s share of the market. Leaving small-scale producers scrambling for a way to create a price premium.
Economic impediments aren’t only in the regulations, but also in the market’s natural expansion into new products. Washington state’s market was about 95% flower when they first went recreational in 2014. Now, only about half of the state’s marijuana sales come from flowers, while the rest is made up of concentrates, vapes, and edibles.
These kinds of products are growing in popularity, but the thing is that the tech and investments need to produce quality vapes and edibles is a huge cost that most small farms can’t afford. It seems that processors who buy flowers for manufacturing cannabis products may have a better chance of survival than the farmers actually growing those flowers.
It’s expensive to get in the game and keep up with the competition. Just look at what happened with big agriculture and the timber industry along the west coast. The system is set up so that only big cooperations with deep pockets can succeed, which leaves farming families in the dust.
The inevitable future is one where the majority of marijuana comes from mega-farms. It’s been called “Walmart weed” because the same thing that happened to mom and pop corner stores is happening to family farms. Sorry, California.
Small-scale farmer’s only hope is to create a movement around craft cannabis. Various groups are forming in legal states in an effort to strengthen the niche. Groups like Mendocino Generations hope to craft a market around local, organic, sun grown, small-batch cannabis. Getting into this niche, growing premium, top-shelf specialty strains, or diversifying cannabis products may be the only way to survive the coming tsunami of big green.
1. Must-have research for any serious player.. Retrieved January 29, 2018 from https://www.arcviewmarketresearch.com/
2.Chiah Rodriques I grow pot in California for a living. I’m worried about legalization.. Retrieved January 29, 2018 from https://www.washingtonpost.com/opinions/will-small-marijuana-farmers-like-me-be-wiped-out-when-pot-goes-legal-in-california/2017/12/29/b54cd99c-ec25-11e7-b698-91d4e35920a3_story.html?utm_term=.1f71f3c0bf7d