By Debra Borchardt, Contributor
cannabis Colorado -- Overcapacity in dispensaries in Colorado is driving down marijuana prices. Retail prices for marijuana have dropped in the third quarter, according to a marijuana store survey by Nicholas Colas, chief market strategist with Converge.
Colas surveyed retail outlets in Colorado and found that marijuana prices fell from $50-$70 for an eighth of an ounce to $30-$45. An ounce fell from $300-$400 to the lower end of $300 an ounce. Colas found that all of his contacts said that greater competition was the reason for the pricing pressure as more retail dispensaries and grow facilities were opened.
“To put this in perspective, there were 156 retail marijuana stores and 204 retail marijuana cultivation facilities at the beginning of 2014, according to the Colorado Marijuana Enforcement division,” wrote Colas. “At the end of December 2014, there were 322 retail stores and 397 retail cultivations respectively.” As of August 3rd, that number has increased to 385 retail stores and 496 retail cultivations, a 20% and 25% increase respectively.
The prices seemed to have stabilized, but Colas notes there are some stores that will sell an ounce for $200. The survey participants told Colas that they have to drop prices to compete.
On a positive note, business is good and customers are increasing. The stores said that they’ve gone form a range of 100-300 customers a day to 150-350. Summer is a busy season, as well as holidays and weekends. Just as Wal-Mart sees its business jump on payday, so do the marijuana stores. Business is good on the first Friday and the 15th of the month.
Sour gummies remain the top edible choice amongst the respondents and vaping cartridges are growing in demand. The products are described as evolving and while it takes longer to feel the same effects as smoking marijuana, customers like the lack of smell and find it easier to use.
As competition increases, store owners are getting more creative. According to Colas, a new Gas and Grass business will open in two locations in Colorado next month. Like any other gas station that sells cigarettes, these establishments will also sell medical marijuana. There will even be loyalty programs. It was noted that they will operate independently, so people getting gas don’t have to be patients and vice versa. But it does allow for convenience and Coloradans have quickly adapted to marijuana sales as just another retail product.
With all this competition, it seems like it would be harder to make these stores profitable. Colas said that by reviewing the tax data from the Colorado department of revenue, he determined that stores probably earn $58 million in revenue, a 97% increase over last year.
Like any properly functioning market, the law of supply and demand rule. Even if the product is cannabis, too much supply brings down the price.
Source: Forbes Magazine (US)
Author: Debra Borchardt, Contributor
Published: September 30, 2015
Copyright: 2015 Forbes Inc.