Cannabis prices in Oregon are literally flatlining. From 2019 to 2021, median wholesale cannabis concentrate prices have been lingering from approximately $4500/lb to $5600/lb [2]. Monthly data extracted from the state cannabis tracking system METRC is now showing that since September 2022, concentrate prices are holding steady at around $4500/lb. When it comes to cannabis flower, prices have crashed to around $600/lb and have been on a decline since July of 2021.
Many cannabis producers found themselves re-invigorated from the 2019 cannabis price crash when the industry saw increased demand during the COVID-19 pandemic. However, it is clear that the cannabis boom is over and producers will need to adjust to a new normal and say goodbye to the glory days of 2017-2018 when flower prices could easily bring in more than $900/lb [2].
Cannabis monthly sales data for flower and concentrate from 2017 to the present [2].
2023 Cannabis Market Statistics: The State of Cannabis in Oregon
The “2023 Recreational Marijuana Supply and Demand Legislative Report” from Oregon Liquor and Cannabis Commission (OLCC) opens by noting that the market has exhibited a see-saw pattern of oversupply and market correction before stating what has become obvious to industry insiders:
“…the Oregon recreational marijuana market is in arguably the weakest economic position it has been in since the inception of the program in 2016 due to a decrease in the growth of demand in Oregon, a production cycle that responds to market signals on a lag, and increasing stockpiles of inventory [1].”
Historic lows in wholesale and retail cannabis prices have been attributed to an overabundance of supply throughout 2021 and 2022, but decreasing demand and changes in consumer preferences have also played a major role [1]. Oregon saw its first-ever decrease in annual sales from $1.2 billion in 2021 to $994 million in 2022, where market demand for cannabis was 52% of supply in 2021 and 63% in 2022. The 2023 Oregon cannabis market is expected to perform better than 2022, but improvements are not expected to outperform 2020 or 2021 sales.
Why Cannabis Sales Are Declining in 2023
In the past, cannabis processors in Oregon have created a sort of buffer to price changes. They’ve ensured that even if growers cannot sell cannabis flower directly, it can be sold at a slightly lower price to a processor that makes concentrates, edibles, or other processed cannabis products. In 2023, this safety net has started to break down.
The OLCC’s report notes that processors are not currently looking for new inventory from growers because they have increasing stockpiles of inventory and are also facing a concurrent drop in concentrate prices [1]. Normally, a drop in cannabis production would lead to a market correction to help equilibrate prices at a lower demand level. This stockpile is problematic because it creates a buffer where supplies remain high and prices remain low despite the drop in production.
On the consumer side of the Oregon cannabis market, there has been a significant shift in preference as well as a decrease in demand [1]. Consumer preference for edibles has been on the rise. However, data is showing that processors and wholesalers are meeting this demand using stockpiled concentrate as well as cannabis harvested as far back as 2021.
How Oregon Cannabis Producers Are Coping
Oregon cannabis businesses are facing extreme pressure to operate under low margins. While there is no limit to Oregon’s ability to produce cannabis, in-state demand can only grow so much. Despite a moratorium on issuing new licenses, license applications submitted prior to the moratorium continue to gain approval [1]. However, many licensees are opting to put production on hold. Falling retail prices are also leading to closures of dispensaries.
Cannabis stockpiles are expected to continue driving down prices, especially for cannabis flower. To stay in business, cannabis producers are having to scale back ambitions. Many businesses have laid off employees, and some businesses are closing altogether. The state’s supply and demand report closes by noting that federal cannabis legalization that enables inter-state cannabis trade is the only way to ultimately resolve the supply and demand crisis that mature cannabis markets are facing [1].
However, oversupply and limited demand are still an issue in nations with legal cannabis like Canada. In Canada’s case, their cannabis market is now working on international cannabis trade. This can also be seen in the CBD market where supply also exceeds national demand.
Finding Solutions to the Declining Cannabis Market
All things considered, regulators and cannabis producers need to face a hard fact: Many people want to start a cannabis business but few cannabis businesses can succeed long term. Cannabis is a business like any other, you need to have a solid business plan, a sustainable operating model, and good business skills to realize success and maintain it. The hard truth of demand limitations needs to be faced at some point though. These lean times will likely lead to more cannabis business closures, and the businesses most affected will likely be small independent producers that have higher operating costs and less business leverage than corporate cannabis businesses.
While regulators are not allowing new licenses, there are also new 2023 Oregon cannabis testing requirements that increase operating costs. Testing for heavy metals and microbial contamination is indeed something that should be implemented, but it is yet another pressure cannabis businesses must cope with. In the years to come, Oregon cannabis businesses will need to go back to the drawing board and find strategies for success within thin margins. Hiring a professional cannabis CPA is recommended.
References
- 2023 Recreational Marijuana Supply and Demand Legislative Report. (2023). Oregon Liquor and Cannabis Commission. Retrieved 5/13/2023 from https://www.oregon.gov/olcc/Docs/reports/2023-Supply-and-Demand-Report.pdf
- Oregon Liquor and Cannabis Commission: Harvest, Price, & Sales Market Data: Marijuana and Hemp (Cannabis). Oregon Liquor and Cannabis Commission. Retrieved 5/13/2023 from https://www.oregon.gov/olcc/marijuana/pages/marijuana-market-data.aspx
