Inflation keeps rising, but weed prices stay the same
Inflation is all over the news, with gasoline prices rising, stocks falling into bearish territory, the war in Ukraine cutting off resources and the pandemic continuing to squeeze the supply chain. But there’s one place where consumers don’t see prices going up: the cannabis store.
The weed industry has not entirely escaped inflation. The cost of materials needed to grow cannabis has increased dramatically. On the contrary, stable prices at dispensaries indicate a high supply of weed and intense competition. There are so many products on the market that stores are reluctant to raise prices for fear of losing customers to the corner store. Farmers too.
The start of the pandemic saw a surge in cannabis sales, as people stocked up on weed and other goods to help them through the lockdown. There was more demand for weed than supply at first, and not enough to satisfy people’s appetites.
Now the opposite is true. Due to inflation, people are tightening their belts and hoarding extra money to buy gas, food and other goods. This has led to an oversupply of cannabis products, with customers suddenly having less money to spend.
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There’s too much weed on the market
Competition for customers between cannabis stores is high at the moment as there is an abundance of products on the market. With the price of most other goods in the economy rising, cannabis stores kept their prices the same, just to attract customers.
“Any of the stores that raise their prices on their own, [it] would be a bit of a death sentence at this point. Customers know they have plenty of options,” said Jason McKee, managing director and buyer at Ganja Goddess in Seattle, Washington. “It’s a dangerous game to raise prices.”
An indicator of the market as a whole, sales appear to have fallen slightly at the Seattle store, but there is no cause for alarm. The store has not had to cut staff or hours.
“There’s definitely been a small percentage drop in sales, especially as it drags on; gasoline prices continue to rise. So while that’s the case, I think we’re going to see a downturn,” McKee said. “Usually we just try to keep the customer interested and keep them coming back.”
The same is true for winegrowers. They have to compete with other producers and cannot afford to raise prices when selling to dispensaries because there are so many products on the market. Growers and retailers currently seem locked into current price levels, fearful of raising prices even as their spending increases.
McKee said he buys product from about 60 growers and sellers and only two have raised prices, and one has even lowered prices.
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Producers feel the pressure
The global supply chain is still in a mess due to the pandemic and shipments are curtailed all over the world. All goods from overseas face long waits and backing up at the dock, driving up the prices of even the simplest materials, including those needed to grow and sell cannabis.
“Like almost every industry, we’re really feeling the pressure when it comes to the supply chain,” said Matt Gaboury, co-founder of House of Cultivar, a grower in Seattle. “We’ve had to switch suppliers for some things just to be able to get the packaging materials or some of the supplies we need… Everything is more expensive than three years ago.”
But as the prices of materials for growing cannabis rise, the amount of money growers can get for their crop when selling to dispensaries is not. Again, the abundance of weeds on the market has also created strong competition among growers. Producers keep prices low simply to sell their products, forcing them to bear the additional costs of materials.
“I think where our industry feels the problem is because the cost of all of this has gone up, so obviously our cost of production is going up and the price remains static; that means our margins are shrinking,” Gaboury said. “If anything, they trended down, not up, to match inflation.”
Supply chain issues have also affected the availability of basic materials. “Things that would usually take 60 days [is now taking] double the time, easy. We had a packing container that was in port for probably almost six months,” Gaboury said.
Even the war in Ukraine affects the cannabis industry. Ukraine and Russia export 28% of the world’s fertilizers (those containing nitrogen, phosphorus and potassium). Trade disruptions and wartime economic sanctions have drastically reduced these supplies, sometimes doubling the price of fertilizers, including those needed to grow cannabis.
“I can get most fertilizers, but the one I want for the summer isn’t available,” said Joe Poulter, owner of Fire Flower, an Oregon grower. He estimates that the cost of fertilizers and other materials purchased from agricultural suppliers has increased by about 25% in recent months.
Also, items that you may not think much of, but are essential for growing plants, have gone up in price. For its outdoor grow, Poulter estimates that 20-gallon pots have gone from around $6 a pot to around $9.
Gaboury from House of Cultivar mentioned that their coir, a medium used to grow plants instead of soil, has doubled or even tripled in price because it is sourced overseas.
Multiply those seemingly small increases by hundreds or even thousands of plants for some crops, and that’s a significant additional cost.
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What will the weed market do next?
The stock market’s plunge into bearish territory this week is not a good sign for the US economy, and the Federal Reserve took a huge step in tackling inflation last week, dramatically raising interest rates to calm the economy.
For now, retail prices at cannabis stores seem stable, but consumers aren’t buying weed as much as more of their budget is eaten up by gas, food and other items. goods whose cost has increased due to inflation.
At this point, it is the cannabis growers who feel the most pressure. Eventually, producers may have to raise prices to make ends meet or face bankruptcy. Higher wholesale prices would likely result in higher retail prices at the dispensary.
But unless all producers can collectively raise prices, some producers could be driven out of business by others who can still afford to sell at low wholesale prices.
Besides the difficulties of the US economy, another variable in this equation is that the cannabis industry itself is volatile, constantly expanding and contracting. It’s a highly competitive industry with operators coming up and going bust all the time. The nascent market is still growing, even in states that have been selling legal cannabis for several years.
“We haven’t really reached stabilization,” said Gaboury of House of Cultivar. “In a state like Washington, we’re a bit more of a mature industry…so I think our roller coaster ride is starting to flatten out. Our troughs and peaks aren’t as important as they used to be. It’s always variable, but it becomes less and less, and more and more coherent.
The full effects of inflation on weed prices are yet to be seen, but the market has proven resilient and able to rebound. In the meantime, support your local cannabis store and grower.