The severe drop in wholesale cannabis prices in many states over the past year can be traced to a few key factors: Regulatory missteps, high taxes for consumers, and competition from still-thriving illicit markets are contributing to the industry’s current woes. Additionally, in states that were early legalization adopters like Colorado, Michigan, and Oregon, production capacity has caught up to the needs of the mature market and supply continues to outpace demand.
It’s also become clear that lowering retail prices does not lead to an increase in demand. Many cannabis cultivators and retailers are experiencing the painful realization that they’re selling a product with profit margins that are eroding as widespread legalization takes hold, and the signs of industry change are already becoming apparent.
As with any industry undergoing a period of distress, a separation of the wheat from the chaff is underway. Businesses that were operating well enough to remain solvent when cannabis flower was well over $1,000 a pound are struggling to stay afloat, downsizing and laying off staff.
Others are part of an increase in consolidation across the cannabis industry as they seek buyouts or negotiate business contracts and agreements that will allow them to continue to operate or recoup what they can prior to shutting down.
Multistate operators (MSOs) and private equity groups that are already in the industry are taking the opportunity to increase their positions within the market, pad their balance sheets and grow. As large operators with access to capital, they are well-positioned to not simply weather the current market conditions, but also to take advantage by adding industry assets relatively cheaply.
Meanwhile, lower-tier producers are trying to diversify their product offerings or wondering what’s the best way to renegotiate contracts or how to transfer their cannabis business licenses.
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