The time is drawing nigh. In less than a month, Colorado and Washington will open the first adult recreational marijuana markets in history. Which brings up an interesting question. Will there be enough product to supply this emerging consumer base?
“It’s a tough one to know right now,” says Michael Elliott, executive director of the Medical Marijuana Industry Group. “The biggest and most difficult question is, ‘What will the demand be?’ There are a lot of outstanding variables. No one has opened a retail business yet, and also you can’t start growing until Jan. 1. Right now medical growers are building as much as they can.”
Meg Collins, who heads the Cannabis Business Alliance in Denver, is cautiously optimistic, but says it really depends on the one-time transfer of product that state rules allow to medical businesses to convert part or all of their medical plants to adult recreational retail product. “You can be allowed a one-time transfer to mirror the production of what you have on hand, and that should allow for sufficient quantities,” she says.
“Nobody knows what the demand is going to be, but it should provide a good base for starting out Jan. 1.”
Another important piece of the supply puzzle is Colorado’s vertical integration system. A vertically integrated market is one where the business is involved in all three aspects of the operation — in this case, growing, processing and selling cannabis. Each must grow at least 70 percent of the product it sells and is allowed to buy 30 percent from outside sources.
“Where there are shortfalls, there is vertical integration,” Collins says. “You can sell 30 percent to other folks. I think if they are able to mirror their production, we should be alright.”
Industry consultant Shawn Coleman points out that, come the first of the year, due to licensing procedures and moratoria and bans by counties and cities, there will only be about 100 stores open statewide. He’s not sure that the one-time transfer will be enough to keep up with demand.
“There will plenty of medical marijuana,” Coleman says. “But not for retail when there will be a high amount of demand in January.”
He expects things to stabilize in the spring, as production catches up with demand.
Andy Williams owns Medicine Man, a large Denver operation that is transitioning to retail, in addition to his current medical operation. He isn’t as optimistic in the short term.
When asked whether there will be enough retail product for the coming market, he didn’t hesitate.
“No, there won’t,” he says. “The recreational market is expected to be $400 million to $500 million in 2014. Medical marijuana is $250 million this year. In addition, We’re being restricted to no more than double our capacity right now, and it might even be less than that.”
Williams says that the expansion of growing facilities is at least a six-month process, with another couple of months before harvest.
“We can’t turn on and off the faucet. It takes time and a lot of money,” he says. “Supply will lag demand.”
Williams says retail owners are stockpiling product and ordering edibles in quantity. But those will run out, he says, because the market is going to be larger than anyone thinks.
“This is gonna be an unbelievable time,” he says. “Tourism is going to come and bolster the state and the industry. Hotels and concessionaires and others are going to benefit.”
Prices for adult retail will likely be double the cost of medical marijuana when stores open. The main limit on price, Williams says, will be the current, flourishing underground market. “If we raise our prices above a certain limit, the black market will take over,” he says.
He sees the price of a pound of cannabis, now priced around $2,700 wholesale, rising to $3,300 to $3,500. “I also see the price of an eighth going from $25 to $45 or $50.”
Adult retail will be taxed at higher rates than medical, which will push up the price. That’s not all, Williams says.
“Assume I kept my prices lower because I can produce a lot,” he says. “Competitors would be coming in to buy my stuff to resell. It’s business.”
When it comes to that all-important one-time transfer, which must be declared the day the business receives its license, Williams says he’ll be leaning toward turning more of his grow operation to adult retail.
“Anyone can buy retail,” he says. “Only medical patients can buy from medical. If I run out, medical patients will have to buy from recreational. Not everyone has the growing power I do. It puts more demand on medical than recreational.”
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