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Study Says States With Legal Cannabis Markets Have Lower Flower Prices

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As some legal markets, and farmers, struggle with the dropping prices of cannabis due to market saturation, a new study provides more insight on the phenomena. Notably, data published in the journal Cannabis and Cannabinoid Research found that states with legal cannabis retail markets typically have lower prices for cannabis flower than states without legal retail markets.

“The price of cannabis has major implications for public health, public safety, social equity, and government revenues,” the introduction of the study reads, adding that the focus of the study was to examine prices and sources of purchased, dried cannabis flower among consumers grappling with a multitude of laws within the U.S.

A team of researchers affiliated with the University of Waterloo in Canada and the RAND Corporation in Santa Monica, California assessed cannabis prices and purchasing trends in states with and without licensed, adult-use cannabis retailers. 

Researchers reported on consumers who live in states with mature retail markets, finding that they rarely solicited the unregulated market in order to obtain cannabis flower. The odds of purchasing legally was also greater with each additional year after stores opened.

They also found that retail prices declined over time in state-legal markets and that the average price of cannabis flower in these states was lower than in states without retailers.

“Consumers paid more for dried flower in illegal, medical, and recreational states without stores, than [they did in] recreational states with stores,” the study authors concluded. 

“Among recreational states with stores, consumers reported purchasing [approximately] 80 percent of dried flower from legal sources in the past 12 months. Substantial differences were observed across states, with higher levels of legal purchases in states with retail stores compared with those without. For example, in Washington and Colorado, where recreational stores were open in 2014, consumers reported purchasing close to 90 percent of dried flower from legal sources.”

Study Data on Flower Markets

Without the data, it’s still been fairly clear that legal markets are experiencing a cannabis price drop. The price of cannabis flower, edible and vape products, averaged by the price per milligram or gram of THC, had a respective decline of 16.7 percent, 11.8 percent and 12.4 percent from January 2021 to January 2022, according to data from analytics firm Headset based on sales in California, Colorado, Michigan, Nevada, Oregon and Washington.

While some have questioned whether cannabis is immune to recent inflation the U.S. has seen in other markets, other experts say this is only part of the story. Andrew Livingston, director of economics and research at Denver-based cannabis law firm Vicente Sederberg LLP, points to the lack of homogeneity in cannabis when it comes to pricing.

Because cannabis is still federally illegal, interstate commerce is still not allowed and states must set up their own regulations. This leads to distinct state markets, with their own sizes and dynamics that often vary from one another.

Livingston said that this phenomenon often influences the price of cannabis, which becomes more dependent on aspects like state-level supply and demand. Other elements that might influence these facts are the amount of competition, high taxation rates, variables like illicit or unregulated operators that cut prices in the regulated industry and the natural growing pains that come with running a business as part of a new industry.

While the price drop is nice for consumers, it’s been tough on growers. While the price of bulk flower in California looks like it’s making a rebound, it hit rock bottom in November 2021 after it began plummeting in March. At its lowest, the value of top-grade flower collapsed more than 65% from its high of about $1,250 per pound in August 2020. 

Especially for small farms, the low wholesale price versus the high operating costs meant losing money, and for some, shutting down entirely. Though Jocelyn Sheltraw, director of industry relations at Seattle-based cannabis data provider Headset and a board member of the California Cannabis Industry Association, told MJBizDaily that midsized and well-capitalized, large-scale brands are struggling, too.

Sheltraw cites high compliance costs, limited retail outlets and a booming underground market as other reasons that the marketplace as a whole hasn’t seen profit, “which is why we’re seeing so many people and companies in California struggle and be vocal about it.”

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