The business of selling legal weed is big and getting bigger. North Americans spent $6.7 billion on legal cannabis last year, and some analysts think that with California set to open recreational dispensaries on Jan. 1 and Massachusetts and Canada soon to follow, the market could expand to more than $20.2 billion by 2021. So it’s no surprise that you see eager business people across the country lining up to invest millions of dollars in this green rush.
But here’s a word of warning for those looking to dive head-first into these brand-new legal weed markets: The data behind the first four years of legal pot sales, with drops in retail prices and an increase in well-funded cannabis growing operations, shows a market that increasingly favors big businesses with deep pockets. As legal weed keeps expanding, pot prices are likely to continue to decline, making the odds of running a profitable small pot farm even longer.
Washington offers a cautionary tale for would-be pot producers. The state’s marijuana market, for which detailed information is available to the public, has faced consistent declines in prices, production consolidated in larger farms and a competitive marketplace that has forced cannabis processors to shell out for sophisticated technology to create brand new ways to get high.
“A lot of people (in Washington) are surprised, and a lot of people are in denial about the price dropping,” said Steven Davenport, a researcher with the RAND Corporation. “The average price per gram in Washington is about $8, and it’s not clear where the floor is going to be.” (...)
Consolidating Cannabis Farming
When Washington’s regulators set up their market for legal cannabis, they created three tiers of pot producers based on the square footage of each farm. License different sizes of farms, the thinking went, and the market will support a range of small, medium and large producers.
Fast-forward three years, and it appears this thinking was flawed. Big recreational producers have swallowed up most of the market, pushing out the small-scale growers of the black and medical markets. From January through September of this year, the 10 largest farms in Washington harvested 16.79 percent of all the dry weight weed grown in the state, which is more than the share produced by the 500 smallest farms combined (13.12 percent).
Davenport said this consolidation of cannabis farming in Washington is just a harbinger of what’s to come. “I think what has become more clear is the inevitability of pretty large-scale production, and that is really going to start to drive down production costs,” Davenport said.
Current regulations keep pot farms from infinitely expanding, but as legalization marches forward, bigger farms could well be permitted. This summer, regulators in Washington expanded the maximum farm size from 30,000 square feet to 90,000. California plans on capping farms at 1 acre, or 43,560 square feet, when the market first launches. But the state rules do not currently stop farmers from using multiple licenses, which opens the door for larger farms.
What would happen if pot farms could be as large as wheat or corn fields? According to Caulkins, 10 reasonably sized farms could conceivably produce the entire country’s supply of tetrahydrocannabinol, pot’s most famous active chemical (usually shortened to THC).
“You can grow all of the THC consumed in the entire country on less than 10,000 acres,” Caulkins said. “A common size for a Midwest farm is 1,000 acres.”
But here’s a word of warning for those looking to dive head-first into these brand-new legal weed markets: The data behind the first four years of legal pot sales, with drops in retail prices and an increase in well-funded cannabis growing operations, shows a market that increasingly favors big businesses with deep pockets. As legal weed keeps expanding, pot prices are likely to continue to decline, making the odds of running a profitable small pot farm even longer.Washington offers a cautionary tale for would-be pot producers. The state’s marijuana market, for which detailed information is available to the public, has faced consistent declines in prices, production consolidated in larger farms and a competitive marketplace that has forced cannabis processors to shell out for sophisticated technology to create brand new ways to get high.
“A lot of people (in Washington) are surprised, and a lot of people are in denial about the price dropping,” said Steven Davenport, a researcher with the RAND Corporation. “The average price per gram in Washington is about $8, and it’s not clear where the floor is going to be.” (...)
Consolidating Cannabis Farming
When Washington’s regulators set up their market for legal cannabis, they created three tiers of pot producers based on the square footage of each farm. License different sizes of farms, the thinking went, and the market will support a range of small, medium and large producers.
Fast-forward three years, and it appears this thinking was flawed. Big recreational producers have swallowed up most of the market, pushing out the small-scale growers of the black and medical markets. From January through September of this year, the 10 largest farms in Washington harvested 16.79 percent of all the dry weight weed grown in the state, which is more than the share produced by the 500 smallest farms combined (13.12 percent).
Davenport said this consolidation of cannabis farming in Washington is just a harbinger of what’s to come. “I think what has become more clear is the inevitability of pretty large-scale production, and that is really going to start to drive down production costs,” Davenport said.
Current regulations keep pot farms from infinitely expanding, but as legalization marches forward, bigger farms could well be permitted. This summer, regulators in Washington expanded the maximum farm size from 30,000 square feet to 90,000. California plans on capping farms at 1 acre, or 43,560 square feet, when the market first launches. But the state rules do not currently stop farmers from using multiple licenses, which opens the door for larger farms.
What would happen if pot farms could be as large as wheat or corn fields? According to Caulkins, 10 reasonably sized farms could conceivably produce the entire country’s supply of tetrahydrocannabinol, pot’s most famous active chemical (usually shortened to THC).
“You can grow all of the THC consumed in the entire country on less than 10,000 acres,” Caulkins said. “A common size for a Midwest farm is 1,000 acres.”
by Lester Black, FiveThirtyEight | Read more:
Image: Gilles Mingasson
