ON A RECENT DAY, a Brockton customer looking for some marijuana could have bought one-eighth of an ounce of LA Kush Cake flower for just $20 at Commonwealth Alternative Care. Nearby, Legal Greens was advertising one-eighth of an ounce of Jet Fuel flower for $25, according to the marijuana marketing website Leafly.
The prices are way down from the $50 or $60 that a decent strain of marijuana was going for just two years ago. That’s good news for consumers tired of paying some of the highest prices for marijuana in the nation, but it’s bad news for the state’s legal marijuana industry. Just four years after cannabis shops opened, the price decline is destabilizing the industry and threatening to force companies out of business. Policy makers are being urged to consider radical action, including placing a moratorium on the granting of new cultivation licenses.
“Everyone thinks cannabis is the greatest thing and they don’t understand the economics,” said cannabis consultant David Rabinovitz, who is predicting mass business closures over the next two years. “When things tighten up, competitors come into the market. All of a sudden [businesses] have to operate on a realistic revenue level, and a lot of businesses aren’t prepared for that. They didn’t plan for it, they didn’t design their business that way.”
When legal recreational marijuana sales started in 2018, the average retail price of an ounce of marijuana was around $400, or $50 for an eighth of an ounce, according to data compiled by the Cannabis Control Commission. The price stayed above $400 consistently through 2020, other than some price fluctuations when the pandemic first hit and stores were temporarily closed. In mid-2021, prices started dipping below $400 an ounce, and they continued to drop, falling to $350 an ounce in early 2022 and then to below $300. By late 2022, there were a few times when the average monthly price dipped below $200 an ounce, or $25 for one-eighth of an ounce – less than half of what prices were when the first stores opened.
One major reason for the price drop is the saturation of the market. There are now 95 licensed cultivators, approved to grow on 2.8 million square feet of canopy, with more cultivators going through the licensing process. When the legal recreational market first opened in late 2018, the state’s tracking system indicated there were 15,000 plants on a given day, a number that hit 100,000 in early 2020. Now, the tracking system has more than 250,000 plants.
The trend is not unique to Massachusetts. The Washington Post reported in December that a glut of marijuana in several states is depressing the market and driving prices down, hurting businesses.
“The number one reason [for lower prices] is just supply and demand,” said Adam Fine, a partner with law firm Vicente Sederberg who specializes in marijuana law. “We have what I’d suggest is an oversupply of cultivation capacity and canopy.”
Demand, which spiked during COVID-related lockdowns, is also dropping. Some customers that have been shopping in Massachusetts are being lured away to neighboring states that have legalized recreational marijuana. Vermont legalized marijuana in 2020, Connecticut and New York in 2021, and Rhode Island in 2022. The first marijuana stores opened in Rhode Island on December 22, on December 30 in New York, and January 10 in Connecticut. Crossing state lines with marijuana is illegal, but the law is difficult to enforce.
Massachusetts customers have long complained that the legal weed sold here is some of the country’s most expensive. Many, in fact, continued to buy on the illegal black market because of the lower prices. But Fine suggested that if prices drop too low, some cultivators desperate to sell their product could illegally divert it to the black market. “The obvious temptation is if you can’t sell it easily and it starts building up that it’s going to go out the back door,” Fine said.
The lower prices also have a downside for Massachusetts marijuana retailers, who began opening in November 2018. Several companies have already shuttered. Ethos closed its Lynn dispensary in early 2022. The Source shuttered in Northampton in December, less than a year after opening. JustinCredible Cultivation in Cummington appears to no longer be operating.
Pleasantrees sent a flyer around the industry seeking to literally give away operating retail dispensaries in Amherst and Easthampton. “Lease takeover with no down payment required,” reads the flyer, which says the company is offering “a no-cost acquisition of its assets.”
The Pleasantrees flyer says it is seeking to focus its operations on its home state of Michigan. The company did not respond to a request for comment, but the flyer gives some indication of why the company is offering the extraordinary business deal. The two dispensaries combined generate revenue of $175,000 to $250,000 a month. The rent on the two properties costs a total of $75,501 a month – an inordinately high rent in Western Massachusetts. Factoring in the costs of buying the product, paying employees, and all the overhead involved in running a business, the high rent likely makes the financials unsustainable.
When the industry first launched, Rabinovitz said, people were desperate to find space to open a dispensary. He said business people saw long lines at a handful of open stores, and failed to account for the fact that once the market matured those customers would be distributed across dozens of stores, so they did “stupid things” like negotiate bad lease terms. “Landlords did a great job maximizing profits,” Rabinovitz said. “The rents charged were outrageous.”
Carl Giannone, co-founder of Trade Roots, a locally owned social equity business in Wareham that does cultivation and retail, has experienced the price drop firsthand. He said the traditional pricing scheme when the industry started was $50 for one-eighth of an ounce of cannabis. Now, the typical eighth goes for $40. The price of bulk flower has dropped precipitously. With the broader economy shifting, people are also buying less marijuana each time they make a purchase and shopping less frequently. Even as sales are slipping, other costs are rising, he said.
Giannone said the number of cultivators has blossomed, and projections for demand based on 2020 levels of consumption proved to be way off. “We didn’t take into account government writing people checks and telling them stay home and smoke weed,” Giannone said. “All of sudden now they go back to work, electric bills are up, food bills are up…people have got to say, ‘Am I going to consume as much?’”
Ed DeSousa, a small grower who owns RiverRun Gardens in Newburyport, said retailers early on were marking up prices considerably compared to the price they paid for the product wholesale. “People were excited they can legally go to a store and purchase cannabis…Retailers were capitalizing off of this newfound freedom and decided to put a price tag on it,” DeSousa said. Now, he said, customers have gotten more discerning at the same time as the market has become oversaturated.
“On the cultivation side, because retail has to drop prices, they’re looking at me to drop prices. That’s sometimes a hard pill to swallow,” DeSousa said. DeSousa said he just about broke even in 2022.
Some in Massachusetts have speculated that multi-state operators can better weather the downturn and force out the small shops. DeSousa said he feels like the biggest operators will “find ways to keep their foot on the throat of the little guy.” For example, larger growers may invest in a retail shop on condition that the retailer carries their products, leaving less shelf space for smaller growers.
But Rabinovitz questions that argument, pointing to a recent analysis by industry publication Green Market Report, which found that 10 publicly traded multi-state cannabis companies owed the federal government more than $500 million in back taxes. Because marijuana remains federally illegal, the federal taxes owed on state-legal cannabis businesses are incredibly high, since companies pay a high rate and cannot deduct business expenses. Rabinovitz said companies that invested in huge, expensive grow facilities may be unable to recoup their costs. “The big guys will fall over. The little guys have a hope of surviving,” he predicted.
There are some policy steps the Cannabis Control Commission could take. There is a provision in state regulations that says if a cultivator does not sell at least 70 percent of their product over a six-month period, regulators renewing their license can reduce the amount that grower is allowed to produce.
The commission has never actually reduced the size of a grower’s allowed canopy.
Commission Executive Director Shawn Collins said at a December meeting that reducing a grower’s canopy size is a regulatory option, but he worried that stepping up enforcement of this regulation might have a particularly harsh impact on smaller growers, who make up nearly 70 percent of all cultivators.
There’s another challenge with reducing canopy sizes: In the short term, the response from cultivators desperate to sell their products could be to drop prices even further, worsening the market glut.
A different option, which some growers are pushing for, would be to impose a temporary moratorium on new cultivation facilities. Oregon imposed a moratorium on all new cannabis business licenses in 2022 to address problems of overproduction, after a years-long pause imposed in 2018 because its licensing agency was overwhelmed. MJBiz Daily reported that some growers in Colorado and Michigan are also pushing for moratoriums to address falling prices.
Fine said he thinks a moratorium may make sense, possibly with a carveout to let more social equity businesses open. “You want to have a healthy marketplace where there’s a lot of competition,” Fine said. “But when you have a highly regulated product, there’s some role for ensuring prices don’t get so low that you’re near the cost of production and the margins aren’t there and it creates a public health and safety concern around diversion.”
If a business does fail, Fine said, there are also ramifications for its creditors and landlord, since marijuana businesses lack access to federal bankruptcy proceedings. A creditor could sue, leading to the court appointment of a receiver, as happened with medical marijuana dispensary Ermont in Quincy. But that is an expensive and complicated process.
But Aaron Goines, who consults for social equity businesses, said Oregon’s moratorium did not alleviate its supply problem, and he is skeptical a moratorium would ease the crunch in Massachusetts. He worries that forcing growers to reduce their canopy size would cause a short-term crash as growers flooded the market. But at least under that scenario, he said, the market would eventually stabilize. “It would be either immediate pain or a prolonged death by 1,000 paper cuts,” Goines said.
Without intervention, Goines said, prices will continue to fall, as more supply comes online in Massachusetts and more legal stores pop up in other states, reducing demand in Massachusetts. “I think we have further to go before we hit the bottom. It’s just a matter of can companies survive,” he said.
Some entrepreneurs say those with a unique niche can still find their place in the market. Ture Turnbull and Wes Ritchie are co-founders and co-CEOs of Tree House Craft Cannabis dispensary, which opened in Dracut in November 2021 and is close to opening a second store in Pepperell. Their LGBT-owned dispensary buys products from craft producers. Ritchie said he thinks the market has simply stabilized and prices have become more competitive as the industry matured.
“It doesn’t feel like a race to the bottom,” Ritchie said. “There are still products that are premium price, which customers seek out. There are small limited batches where prices haven’t dropped very much.”
Turnbull suggested that the lower prices can also draw in new customers, who can try out gummies or edibles for $20. On an average day, 40 percent of the store’s clients are new customers. “I do think having variety, also price point variety, helps people get over the stigma and helps them get over the new customer experience, get in the store, and realize it’s pretty exciting and fun to be there,” Turnbull said.
Ryan Cohen, a veteran who founded Top Shelf Cannaseurs in 2018, launched a joint venture a year ago with Michigan-based Glorious Cannabis, which paid for the business to move from Hudson to Uxbridge. Cohen said prices have compressed significantly in the last year and the new venture has not yet broken even. A pound of wholesale bulk flower might go for $800 to $1,200 a pound compared to $1,500 to $2,000 last year. But Cohen is optimistic that high-quality products will still sell.
“I think the cream rises to the top in the end,” Cohen said. “You can buy a whole lot of okay weed for very cheap right now. But the special stuff – organics, high THC, stuff grown with care – will fetch a premium.”