The growing industry on cannabis has been reshaping the world economy and paradigm surrounding the plant for quite some time now, but could this market help prices of the cannabis plant plunge in the near future?
There is no doubt that lower marijuana prices seem to be a good thing for companies and patients alike, but the scale of this price floor might be surprising to some. Cannabis is currently being cultivated around the U.S. in great numbers such as greenhouses throughout California, Oregon and beyond ranging from upwards of 250,000 sq. ft. These grow houses can produce more than 50,000 pounds of dried flower individually, which means that the amount of cannabis being produced right now is more than ever. Although this number may seem like a lot, countries around the world are growing as well, especially throughout Europe and Canada.
In the U.S., a cultivation license is widely considered to be the holy grail of the industry, as the process to get one is extremely competitive and consuming. Pennsylvania last year, granted only 13 licenses in a state with over 13 million individuals, showing a large amount of competition for these licenses. This is not just a domestic issue as some companies abroad have invested millions into companies for the sole purpose of them having one of these licenses. New York is another example, granting only ten permits for growing in a state of nearly 20 million people. The competition in the space has remained high, especially in places like Florida, where one licensed cultivation/dispensary sold for $40 million before any revenue had been collected by the company.
The issue is that these large companies are working to produce as much flower as they can in the short term. Because these plans are mostly short-term, once the licensing catches up to some extent with the high amount of demand, these companies will no longer hold the only place in the business of cannabis, possibly leaving supply at a higher spot than the demand. This can result in prices dropping drastically, which might not be bad for the market after all. In Colorado from the period of 2013 to around the 1st of April, prices of cannabis dropped from around $3,500 per pound to almost $1,000. Large companies have been fighting to see who can lower prices the most, but this has resulted in a large amount of smaller companies going out of business.
The trend that we are seeing currently in the cannabis space will likely come to an end as issues with legality and legislation begin to overturn. One of the largest issues remains the legal standing of the plant in the U.S. Because of cannabis Schedule I standing, it is extremely difficult and confusing to deal with cannabis in domestically. Once these issues are able to subside, the hopes are that the whole of the industry and the ancillary business associate with it, will begin to have an easier time running their companies. Once this happens, many expect that the large-scale businesses will be able to fully take over the growing aspect of the industry, leaving freedom for smaller businesses to get in on an individual level like any other market.
The cannabis market is still very much in its infant stages, but growth in the sector is happening at a very fast pace. As the market is able to mature, the hopes are high that individuals will continue to flock to the space, helping to build the industry and continue with the high rate of investments into new businesses and ideas.
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