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Cannabis trends in Colorado. Production costs, concentrates and buds.

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A look at the data from the legal cannabis market in Colorado is showing some surprising trends.  Not only is business booming, but those in the legal canna-business have seen some remarkable changes to the cannabis buying habits and prices since they started.  Here are a few of the more interesting trends.

 

a) Cannabis shortages, over-production, and more shortages again.

Cannabis was first legalized for recreational use in Colorado in 2012 and Colorado was instantly the tourist destination for Americans and non-Americans alike.  Initially there were proud claims that Colorado was going to be the most organised and professional cannabis supply chain in the world, but shortly after legalisation many dispensaries reported that they couldn't buy cannabis even for obscene wholesale prices of $3000+ per pound (450g).   It took a long time for some of Colorado’s top cannabis producers to ramp up supply to cope with the early demand.

By mid-2016 the typical wholesale cost of a pound (450g) of pot is nearer $1500 as suppliers have invested heavily to keep pace with market demand, especially demand for recreational cannabis.  The Colorado cannabis market is seeing demand increase by around 20% per year.  That puts pressure on existing growers to increase efficiency and for new growers to enter the market with lower-cost operations than existing growers.  Many professional growers feel the the actual minimum cost to produce cannabis is currently around $1100 her pound, with most of the costs being building costs, staff, bud trimming, electricity and nutrients/water.  Some operators feel that the costs could be reduced further, even below $1000 per pound. But profit margins are less than they used to be. The availability of top grade cannabis, especially for medical use, can still be problematic.

 


b) The trend away from buds towards concentrates - hash, cannabis oil, shatter etc.

Initially the first Colorado dispensaries would tempt customers with an endless choice of manicured buds, initially some 70%+ of the market demand was for buds, or ‘flowers’ as they are called in the US legal grow business.  However in the following few years many dispensaries report that the  demand for flowers is steadily falling, with concentrates and edibles surging in popularity.  Buds/flowers now account for the minority of sales at many retailers.  Perhaps surprising to many people is the fact that consumers strongly prefer to use concentrates which allow smaller and more convenient consumption methods.  Without doubt, some of the trend towards concentrates is because Police still discourage public joint smoking in many areas (full review of Colorados cannabis laws are here). This has encouraged people to buy discreet vaporizers.  And many others prefer the convenience of buying edible cannabis products (‘medibles’).  It will be fascinating to see the situation evolve in Europe, once it is legalized.  

 

 

c) Investment pours in from outside Colorado.

The USA capital investors love any industry which is profitable, legal and shows annual growth above the national average.  Parts of the Colorado canna business are routinely growing at 10-20% per year and have been for several years.  These are the types of statistics which gain interest from cash-rich investment funds looking to take a slice of emerging high-growth markets.  Many from the local cannabis community will be irritated that newcomers to the cannabis industry are starting many of the bigger companies.  But others will argue that so long as good quality jobs are created it doesn't matter where the money comes from.  

 


d) Compliance to state rules.  Learn to love it or get out of the business.

One very large legal Colorado grower recently told us that 10% of his workforce were dedicated to ensuring legal compliance i.e. that the business was obeying all the legal requirements.  Any romantic dreams of spending all day growing cannabis are soon shattered with the reality of having to guarantee that every aspect of your business is operating within the strict rules.  Those that have failed have had their business shut down and grow licenses revoked.  Minor infringements, such as using the wrong pesticide, will see your entire harvest sent to the compost pile.  Big infringements, such as exceeding your maximum plant limit can cost you your growing license.  You need your paperwork in order, you need to keep up to date with rule changes and pass your mandatory inspections.  No excuses.

 

 

 

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In November 2016 another 9 states vote to legalize cannabis, each one of those states will be looking at the experience of Colorado’s pioneering cannabis laws and trying to implement their own optimised rules and regulations.  They will be aware of how much extra cash and jobs Colorado have taken back from the cannabis black market, and will be keen to do the same. 

 

Eventually, as each state move towards legal cannabis, the Federal Government will reluctantly consider a national approach to cannabis and a change to Federal drug laws.  Its something they have been avoiding ever since the 1990’s when California first legalized cannabis for medical use.  But in a few short years from now its quite likely that the USA will have a nationwide legal cannabis industry.  And many of those rules will be based on the learnings from Colorado.  Who knows, Europe’s future legal cannabis market may also end up being based on the Colorado model.

 

 

September 23rd 2016
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Dutch Passion advise their customers to reassure themselves of local applicable laws and regulations before germination. Dutch Passion cannot be held responsible for the actions of those who act against laws and regulations that apply in their locality. Cannabis seeds should be kept as collectible souvenirs by anyone in an area where cultivation of cannabis is not legal.