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Don’t Blame Wildfires for Rising California Cannabis Prices

November 20, 2017
(Juanmonino/iStock)
October’s vicious Northern California wildfires, the deadliest and most damaging in US history, also dealt an unprecedented blow to California’s emerging legal cannabis industry—and at a crucial moment.

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In addition to at least 43 deaths and the destruction of more than 8,900 homes and buildings, the fires’ casualties included at least 47 legal marijuana farms, according to the most recent tally from the California Growers Association. Total damage to legal cannabis crops is now estimated at “$60 million or greater,” according to Hezekiah Allen, the association’s executive director.

As much as 4% of the state’s cannabis crop may be affected in some way, according to commonly accepted industry estimates.

That figure could rise as farms untouched by flames discover their crops are contaminated with toxic smoke, or as wholesalers find that their smoke-scented harvest—which has earned nicknames like “campfire pot” and “hickory kush”—is now worthless on an already saturated market. “Is there benzene in that smoke? We just don’t know yet,” Allen said.

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But as apocalyptic as the fires were for the farmers they touched, as far as statewide marijuana prices are concerned, they may as well not have existed.

The fires simply aren’t enough to disrupt a marketplace already drowning in biblical oversupply.

“I don’t expect this fire to affect cannabis prices too much,” said Mike Ray, CEO of Bloom Farms, a major cannabis oil producer. “Production is at an all-time high. That’s going to be much more to blame for price elasticity than the fire.”

While the recent fires won’t cause prices to spike, more expensive cannabis is still coming.

And while whatever impact the fires had on the statewide marijuana market has already been absorbed, farmers and analysts say, small and medium cannabis cultivators are still at serious risk of being driven out of business. The real knockout blows to cannabis businesses have yet to come.

Ray, too, is a victim of a California wildfire. His family home and his company’s farm both went up in flames during the 2015 Butte fire in Calaveras County, and he has yet to fully rebuild.

The recent fires will absolutely put some people out of business—but cold, hard market forces will end the dreams of many more.

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In 2016, the state’s marijuana farmers produced as much as 13.5 million pounds of cannabis, according to a study commissioned by the state Department of Food and Agriculture. That’s five times more than California cannabis users consumed. The surplus exited the state to be sold on the black market at a higher price—or worse, stayed put.

This year, industry observers are seeing more of the same—literally. Last year’s harvest is still coming into dispensaries for sale, and it’s now competing for shelf space with the 2017 crop—including the bounty from massive, investor-backed greenhouses.

“From what I saw before the fire, there was an awful lot of cannabis in the market,” said Andrew DeAngelo, the co-founder and director of operations at Oakland-based Harborside, the state’s largest dispensary. “Last year’s crop was still coming into our shop and being offered to us before the fire—and last year’s crop is still coming into our shop and being offered to us, post-fire.”

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Harborside sources about “between 10 and 20%” of its products from the wildfire-affected areas, DeAngelo said—but the dispensary is also currently cultivating marijuana on a 47-acre former ivy topiary nursery in Monterey County.

Despite the obvious oversupply, many cannabis businesses are building bigger and bigger farms. Last week, California officials finally released the state’s long-awaited regulations for the cannabis industry—which include no limit on how many acres a cannabis cultivator can plant.

Cities, meanwhile, are generally keeping the number of retail stores steady, meaning most of California’s marijuana harvest may never see a dispensary shelf.

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For most sun-grown marijuana farmers new or old, prices are at an all-time low.

How low? While retail prices have remained relatively stable (so far), suppliers are reporting wholesale offers of $500 to $700 per pound for outdoor-grown flower—if the crops are accepted at all.

For cannabis destined to be extracted into concentrates to fill vape cartridges or dab rigs, prices are even lower. $50 a pound isn’t unheard of.

Faced with such low profit margins—as well as the choice of either selling product at a loss or trying to ship it out of state—many small-to-medium marijuana entrepreneurs are calling it quits.

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These growers generally don’t have massive savings or any hope at investment from funders looking for pre-legalization’s massive margins, said Kevin Jodrey, a nursery owner and longtime cannabis cultivator based in Humboldt County.

“This was a make-or-break year,” he said.

But while wholesale prices continue to tumble and producers’ livelihoods evaporate, it’s not clear consumers will see much savings at all.

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The state’s marijuana market has yet to figure out how it will react to government regulations, which are poised to increase overhead for cannabis businesses and raise end prices for consumers. When state excise, cultivation, and state and local sales taxes are added tallied, the government’s toll on California marijuana will be as high as 45 percent in some parts of the state, according to a recent report by Fitch Ratings.

That doesn’t include the cost of subjecting products to purity tests, which are shaping up to be the toughest in the nation and could be so costly that, at current estimates and prices, testing a pound of cannabis could be more expensive than buying one.

According to an estimate from the state’s official Bureau of Cannabis Control, lab testing will cost $407 per pound.

So while the recent fires won’t cause prices to spike, more expensive cannabis is still coming.

“Retailers are paying less and less for cannabis than we did 10 years ago, but our costs to deliver that cannabis have gone up and up,” DeAngelo said. “It’s a lot more expensive to do this legally. With the taxes going up from 0% to 35% just on the supply chain itself, I don’t see how I can not raise prices.”

Chris Roberts's Bio Image

Chris Roberts

Based in New York City, Chris Roberts has been writing about cannabis since spending a few months in Humboldt County in 2009. His work has been published in SF Weekly, Cannabis Now, The Guardian, High Times, and San Francisco Magazine, among others.

View Chris Roberts's articles

  • Rob Woodside

    Hmmm… Dope at $25. an ounce, just like the old days!!!

    • DCBC

      What for a “lid” of leaf maybe, yeah i don’t think that’s what this article was implying

      • Rob Woodside

        The under supply in WA and CO on opening scared Health Canada into relaxing some of the Reefer Madness rules in hopes of an adequate supply on opening. So we have one lot saying there’ll be an over supply because of all the production and another lot saying there won’t be enough
        The Canadian strategy of “Legalization, but not necessarily legalization” with all the Reefer Madness rules and regs to continue punishing people will not necessarily destroy the black market. The Reefer Madness folk focus on the price and say that at $10/gram they’ll drive out the black market. That may have been true a couple of years ago, but the street price is now just over half that. Rather than have Stalinist dispensaries bought with taxpayer money, they should be trying to make the black market legal and encouraging them to join the rest of society.

        • Excuse me

          Combining stringent rules and taxation with an ever increasing supply and drop in prices will certain drive out many of the producers, which will ultimately lead to less supply, which will then lead to prices rising again…

    • Jeff Hudson

      That’s what I thought until I read the article more thoroughly – the $407/lb in the article was referring to just the cost of laboratory testing.

    • klw

      Ya that can’t be right. And anything good has never been that cheap, even back in the good old 70’s and 80’s.

  • DCBC

    Here’s the first problem,”According to an estimate from the state’s official Bureau of Cannabis Control, lab testing will cost $407 per pound”. The second problem is suppliers are reporting wholesale offers of $500 to $700 per pound for outdoor-grown flower and some as low as $50 and Retailers are paying less and less for cannabis than we did 10 years ago . Then the third problem the government’s toll on California marijuana will be as high as 45 percent in some parts of the state. Not fair the grower does most of the work.

    • Azwe Thinkweiz

      There is only 1 problem. Government.

      • DCBC

        Yup that’s what it all comes down to, there’s no FREEDOM in CONTROL.

    • klw

      It will change in due time. This is a huge experiment so growing pains are to be expected. What I think is bs, the longtime growers affected the most by legalization are not getting any help, at least yet.

  • Shoreline1

    Obviously, the government will solve the problem.

    • Excuse me

      Obviously an ironic remark.

      • Shoreline1

        Yeah, maybe it was. It would seem that if incarceration solved problems as well as our government thinks it does, we would have no problems left by now. And how do American children grow up to be unfit for society, anyway?

        • Excuse me

          Perhaps incarceration simply sequesters. It certainly does not rehabilitate. In fact, it often acts as a training camp for more effective criminality. Sometimes keeping an individual off the street is the best the rest of society can hope for.
          As far as children growing up unfit, I have seen the best people wind up with horrible children. I have seen unwanted, abused kids become fully functional, well educated, and thriving as adults. I don’t understand why.

          • Shoreline1

            Good points. I agree and also don’t understand. Must be low on omnipotence.

          • Excuse me

            Ha! Join the rest of us lacking in omnipotence.

          • Shoreline1

            I know what you mean. And my children are bad, but not horrible.

  • Jan

    Prices going up?? Who’s making all the money? Nevada’s prices are no higher than California’s and it includes taxes and testing. It already costs me about $500 a month for my family member’s medication. If medical marijuana is considered legitimate, California should require insurance companies and MediCal to cover it. Even at $500 it’s a lot cheaper than all the prescriptions Medicaid previously paid for.

    • 360dunk

      Final dispensary prices are very similar in both states today. In Nevada, we’re experiencing low inventory so our prices have risen since we went recreational in July. California has a much larger supply, thanks to outdoor grows, so their prices are a bit lower till the tax kicks in. End results in a typical dispensary are similar in both states – $30-50 for an eighth and similar prices for edibles.

    • Excuse me

      Requiring insurance to “cover” anything just brings prices higher for everyone. It actually may be better to do away with much of “insurance coverage” if you want affordability. Many non-covered medical services have remained lower cost BECAUSE of non-coverage. Look at college. The more money the government provides for school, the higher tuition has gotten. Government can’t run a two car parade without a major screw-up. In many arenas, less they try to control, the better.

      • Kelvin Smith

        We just haven’t seen good government in this country. Take the money out of politics and buy marijuana with it instead…and share it with whoever you vote for.

        • Excuse me

          Well, we have the best template for government, but it has been subverted by the greed of everyone. No surprise there, actually. When you take a being running on paleolithic biochemistry, and put him in Congress, he still has a brain triggered by fear of starvation and need–despite the fact he or she can be exempt from insider trading, lives in luxury, and most could survive a long time on stores of body fat.

    • klw

      Talking about rec.

  • 360dunk

    If the idea is to get consumers to purchase their weed in a dispensary instead of a street dealer, then the state needs to be less greedy. Excessive taxation may bring in more revenue for schools, roads, and parks but it will also prevent more buyers from leaving the tax-free black market. Either you lower the taxes to bring in the masses or else risk losing them to cartel sellers. Government greed at its worst.

  • klw

    Ya we all knew CA was going to have issues with the legal rec. Probably more problems then the rest of us. It will take some time, when the revenues starts coming in and the stores are asked opinions and for input things will change. They will have to just like it did here. Your neighbor to the north. A lot of it will depend on the greed and willingness to figure it out in the CA Gov. They may have some bright ideas now, but reality may change all that. The black market will always be around, even here with stores EVERYWHERE a good deal on an oz can still be found on the street. But lot’s of competition has brought prices down.