When it comes to sales, it’s always about the law of supply and demand – even with marijuana prices. In California, there has been an increase in marijuana production over the years. Because of this, the state is now feeling the negative impact on the wholesale market as prices plummet by as much as 60% since the middle of June.
The downward spiral of pricing pressure hasn’t hit all of the cultivation sectors in the state yet. Many indoor growers seem to be in a better situation in terms of wholesale prices as these have only gone down by 10% to 20% compared to what the outdoor farmers experience. Unfortunately, many insiders believe that this downward spiral will continue for years due to the constantly growing number of marijuana cultivation sites in the state.
Struggles with marijuana sales
The Humboldt County marijuana farmers are now drowning in the cannabis market as it’s already flooded. High supplies cause the prices of cannabis to fall and the small farmers have struggled to remain afloat. Now, they fear the sustainability of their business in the future. For instance, Jason Gellman is a 2nd-generation farmer who owns the Ridgeline Farms in Southern Humboldt. He has seen how the cannabis market evolved since he was young. He has the edge over his competitors since he has a well-known brand throughout the state and the region. But even with this advantage, he struggles to sell his cannabis products.
According to Gellman, times are extremely difficult for small farmers. Most of them are “in the red,” and those lucky enough to sell their products have to settle with an average price of $700 per pound, which is very low. The county asks for their earnings, the state asks for their earnings, the banks ask for their earnings too. They also have to pay the trimmers along with other fees of the business. For small farmers, it costs approximately $500 to grow one pound. With all of the payments, they are barely paying their bills.
According to Natalynne DeLapp, Humboldt County Grower’s Alliance Executive Director, back in June, the price of wholesale cannabis from the previous year went down from approximately $1,200 for each pound. This occurred when the light deprivation or “dep crop” started affecting the market. According to DeLapp, the wholesale price for this year is between $650 to $750 for each pound. In 2020, the wholesale price for a high-quality flower fell between $400 to $500 for each pound. Some farmers have their harvest in 2020 returned from their distributors since they couldn’t sell it. This is after they already paid for trimming, testing, and the harvest taxes of the state.
Dropping Marijuana prices
Ross Gordon, the Humboldt County Grower’s Alliance’s Policy Director, says that a reliable estimate is that they’re producing around twice of what the local market can consume with the existing permitting levels. They’re looking at wholesale marijuana prices in California that are a lot worse than they have ever been. This is what all farmers are now thinking of. Since farmers produce twice the amount that the market consumes, the prices for their products, including smell proof bags, are now going way down. This situation is what every outdoor farmer experiences right now. Generally, outdoor farmers keep most of their outdoor harvests every fall to sell the next summer or spring. Those are the seasons when there is a lower supply, thus resulting in a spike in wholesale prices.
The factors affecting wholesale prices
Adrian Sedlin, Santa Barbara-based Canndescent’s CEO, which is a large commercial grower, truly believes that there is a problem with supplies. According to Sedlin, there is 12 times as much licensed production as there are licensed dispensaries. Ross Gordon of HCGA believes that the state struggles with a “structural oversupply problem.” According to Gordon’s calculations, California has approximately 1,700 acres of operational cannabis production. But the cannabis consumption of the state only accounts for around 1,000 acres worth of sales each year. This means that there are still hundreds of acres in the pipeline. If the situation doesn’t change, things will get worse.
There is also a certain insider of the industry who requests anonymity who estimates that there has been a sudden increase in growth licenses by approximately 22% – from more than 6,100 active licenses for cultivation to more than 7,900. If these were for outdoor cultivation, that would cause an increase in the production of cannabis. But California doesn’t have a state-wide limit on how many cultivation permits to issue.
The COVID-19 pandemic has affected the cannabis industry too. Because of the pandemic, wholesale prices for cannabis increased. Because of this, many farmers decided to either reinvest in more cultivation infrastructure or keep part of their harvest from last year since they expected the normal summer and spring price spike. Sadly, this didn’t happen.
According to Autumn Shelton, a grower in Santa Barbara, the wholesale prices went down in the winter of 2020. But when January of 2021 came, the wholesale prices didn’t increase. During the summer season, when prices should have reached an all-time high, they went down instead. This will be extremely difficult for many growers and distributors who didn’t prepare for this unexpected price drop.
A call to action
Some small farmers are now demanding to place a limit on acreage, while others prefer to have a strategy shift. They prefer to have long-term and short-term solutions that will support small farmers better. The hopes here are international and interstate commerce. Right now, farmers are still a few years away from that. Therefore, the question is how the county will support the small farmers to remain afloat until then. Also, they wonder how they will use the time they have to establish a cannabis brand so that they will hit the ground running when new markets open in the future. The Humboldt County Grower’s Alliance now hopes to win the bid to market the cannabis of the county. The best thing that the country can do now to ensure resilience is to go all-out in developing a strategy.