USA: California Green Gold…Maybe Not?

Legal Weed Isn’t The Boon Small Businesses Thought It Would Be

As California opens its market Jan. 1, Washington state’s experience serves as a warning.

By Lester Black

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.”

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