Marijuana Market Conditions
Marijuana retailers in Massachusetts have limited the amount consumers can buy during visits. A drought in its formal definition is a prolonged period of abnormally low rainfall, leading to a shortage of water. In the street culture, when a drought has arrived, it’s tough to find illicit drugs. Cannabis, although not deadly, is still considered an illegal drug on a federal level in the United States. As more states decriminalize, implement a medical market, and draft regulations regarding adult-use sales, marijuana “droughts” are expected to decrease. In the state of Oregon, regulators handed out retail and cultivation licenses to anyone who could write there name on the application. With many state licenses approved and a thriving unregulated industry in the neighboring state of California, prices for marijuana in Oregon have dropped dramatically.
Here on the east coast, ten years ago, you could purchase an ounce of good weed ranging from $200-to-$350 coming straight from your local dealer. As Major Bloom prepares to open its retail doors, I’ve worked with cultivators from across the nation that can produce pounds of marijuana for sub $350, considering the cost of goods and operating expenses. There are 16 ounces in a pound, and in the Massachusetts legal market, a consumer can not purchase more than one ounce during a visit. Some retailers in MA limit customer purchases to less than the state-regulated ounce, with a fear of running out of products. Even though grow facilities are now scaled commercially, a price for an ounce in your local MA dispensary is still over $300 plus tax. Regardless of unregulated or regulated, why have we witnessed the cost of marijuana remaining high over ten years? Why does it cost a cultivator $18.75 to produce an ounce which retails for over $300 in the legal market? What exactly are consumers spending money on in dispensaries? Customers determine the value of a product or service by their willingness to pay. With a limited amount of retailers open in the legal market and substantial tax implications, prices will remain steady for the next couple of years. Consumers are deciding to purchase marijuana from legal entities because the concept is “new,” and they are buying into the new system of commerce. Still, as the allure of marijuana retail digresses, entities will need to do better than just opening their doors on time every day to retain customers.
The economic and social forces of the cannabis market are unparalleled to any other industry, which is why the culture has hypnotized me for 15+ years. The profit margins on marijuana can be ridiculously high because of the legality of the plant. I do not want to charge customers an excess of $300 for an ounce of weed, but when my cost for a pound is $3000, there needs to be a profit made. And deep down inside, I don’t want to pay $3,000 for a pound of weed when I know growers who sell in other legal markets for half that price, which is why Major Bloom will also be controlling a cultivation license. In any industry, especially those of commodities, a price race to the bottom doesn’t benefit anyone. Companies playing in the market lose margins while customers lose quality. In MA, we see a variation of the opposite, with high prices, and the barriers to enter the market, but product quality is only OK. Large companies seek to scale conveyor belt cannabis, which is not handled with the same care as a small batch grow. I get it, from a business standpoint, you want to be able to control your variable cost and drive efficiency. There is undoubtedly a market for both small batch and more massive conveyor belt cannabis, so I can’t knock the hustle. Years ago, we called “meds” with sticks and seeds, the low grade, cheap marijuana. In today’s dispensary, you will not find sticks and seed in buds, but the cheap pot will come from the largest grows.
Two of the notable differences for cannabis consumers when comparing your local dealer to the local dispensary is the variety of which you have as a customer and the consistency with regards to available products — a dispensary will win. Additionally, consumers are getting lab-tested buds with cute packaging. Your local dealer doesn’t have 12 different strains with a mixture of alternative consumption methods. In other words, if a consumer is interested in a sativa with hopes of feeling energized, there is a slim chance you know what strain you are about to consume along with the genetic makeup. As consumers, and much like dieting, everyone’s body is different and reacts differently to compounds of marijuana. So what might give one person energy, might barely get you high. The variation is the exact reason why lab testing is critical; consumers can keep track of how a genetic compound makes them feel, and dispensary purchased weed will help guide that experience. GW Pharmaceuticals is based in the UK and produces a cannabis extract by the trade name of Sativex. The product is a mouth spray that contains two chemical extracts derived from cannabis, delta-9 tetrahydrocannabinol (THC) and cannabidiol (CBD). The product helps patients relieve pain from multiple sclerosis. This international, publicly-traded company doesn’t cultivate weed for quality; they grow marijuana for scientific consistency and operational excellence. Whether dealing with debilitating medical conditions or traditional recreational consumers smoking to focus on their studies, there is a market for everyone. Still, it’s up to the dispensaries, manufacturers, and cultivators to decide which consumers they want to target. In the state of Massachusetts, marijuana delivery laws are soon to be set for implementation. As international and interstate commerce also come into play, consumers will have more options to fit their desired needs while also making buying decisions from the comfort of their own home. Consumers are looking for this traditional type of service, and the company that best understands the needs of their target and executes will win.
