SHARE
Blue Dream Cannabis Pound
Blue Dream Cannabis Pound

Questions of Price as Washington State Rolls Out Recreational Cannabis

Cannabis City two days before opening. Photo by Dominic Corva
Cannabis City two days before opening. Photo by Dominic Corva

While many focus on the high per-gram retail prices for legal cannabis, and complain about the slow pace of the WSLCB retail launch, the reality is that active I-502 growers will experience a major windfall in the coming months.  The question is, how much and for whom?

Even as I write, one day in advance of the state’s first legal retail cannabis stores opening, the pricing structure for wholesale pounds is completely undeveloped.  The retail launch is not timed well for available production: as of July 1, about 2% of total producer applicants have been approved.

The Breakdown

Most of that approved canopy is likely non-indoor Tier 3 (21,000 sqft) production, and while light dep harvests will help accelerate production potential, the rest will be available in November. Until then, Tier 2 (7000 square feet) indoor producers will be relied on almost exclusively for the legal market. Approved “mom and pop” Tier 1 (1400 square feet) producers will need to capitalize on the windfall before the outdoor harvest starts the inexorable path towards black and gray market parity.

24 retailers out of 334 were approved to open

There’s also the effect of the random lottery approach to retail: those who have been approved have hardly had time to develop robust sourcing networks. Cannabis City’s James Lathrop, who will open the first legal retail store in cannabis tomorrow, had a single supplier yesterday evening. Interestingly, this supplier offered their pounds at what I think will be the lowest wholesale price we’ll see for months, $2800/lb.

Others who have talked to CASP tell different stories but with a consistent price range that is significantly higher. Hardly any of them had made substantive progress towards contracting their retail supply, and some are waiting for stores to run out. The potential for price-gouging is real, but most producers I’ve spoken with don’t want to be perceived as greedy for several reasons.

Kouchlock Productions‘ Sean Green, who was the first producer to be licensed in the state, takes bids on his product. These have ranged from a low of $3000/lb to a high of $7000/lb, sight unseen.  The latter number, for business reasons as well as ethical ones, was deemed too high but Green expects to wholesale at between $4000 and $5000/lb, which was approximately the nominal wholesale price for good cannabis out of Southern Humboldt at the end of the 1990s (adjusted for inflation, prices in the early 1980s surpassed $8000/lb).

How does this work out for retail consumers?

  1. $4500 pounds equate $10/gram, before the 25% excise tax is .paid (supposedly by the producer/processer).
  2. The retailer builds the 25% excise tax into her price, which then starts producing surplus at about $15.50/gram.
  3.  This gives us a retail per gram expected price range of about $20-$25/gram, plus or minus about five bucks for the low and high end of the $4-5K range.

While that price is a little more than double current medical access point prices, it’s important to remember that until prices come down, the typical legal cannabis customer is not expected to be drawn from the ranks of existing cannabis consumers. 24 retailers out of 334 were approved to open today, and they will undoubtedly draw novelty customers, tourists, casual users with discretionary income, and folks who feel morally obliged to purchase legally now that they can.

The limited supply will meet limited demand. I estimate that the November product will ease existing shortages and smooth out anomalous market-setting behavior.

This will be reinforced by the balance the WSLCB creates between limited retail locations and unlimited production canopy — especially when the new window of producer/processor applications opens in the fall. Once this fixed-to-open ratio brings legal retail prices down to competitive prices, the window for further retail applications will open again.

The Takeaway

The big winner of the I-502 process right now stands to be small and medium-sized growers who had their act together and didn’t run into unexpected roadblocks to approval.  That wholesale price per pound is one to envy, and it will last for a while.

2 COMMENTS

  1. We must have a World Truth Commission, where people busted for cannabis will be freed, exonerated and compensated, and those criminals who instigated and profited from this evil War On Drugs shall be prosecuted, jailed and their assets confiscated and given to the victims … I came to this conclusion after spending two years writing a book about the freetown in Copenhagen and its use of cannabis… you might like to read Christiania Angel:
    ‪http://www.amazon.com/Christiania-Angel…/dp/B00KGGI6M2
    Or
    https://itunes.apple.com/us/book/christiania-angel/id880623348?ls=1&mt=11

    Kindest regards,
    John

Leave your thoughts