If you’ve noticed prices creeping up at dispensaries, you’re not imagining things. Learn how tariffs are impacting the cannabis industry.

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Cannabis freedom saves consumers money, researchers find.

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It’s an interesting time in the weed world. The federal government is slow-dancing a signal fest that weed is acceptable and welcome to the fold. Nothing has really changed except perceived sentiment, but things will change and things have changed. For one, who we have relationships with in the industry today is not the same as yesterday, and tomorrow we have no idea except a guess. 

There is still a lingering holdover that still looks at the current state of cannabis the same way Kurt Cobain would look at a Nirvana song in a Hyundai commercial. Unfortunately the nostalgia-laden still have to eat and ultimately will take to YouTube or Instagram to sell some product under their brand. Some just bailed and grow for themselves working an impersonal day job to pay the bills. Some already made their money and can kick back and judge the scene from a balcony window. Anybody still playing the game is still fostering new and old relationships.

Creating Relationships

It’s a bit easier to create new relationships these days and at the same time harder to maintain them. People’s perceptions of you and your story change day to day based on surface level interpretations of who you are and what you are doing online, not necessarily in real life. This plays into how a brand sells and how much attention they can gather for a drop. This type of success can come and go with the wind. The handful of brands that have maintained success regardless of social media image have been tirelessly listening to their customers more so than what people are commenting on. Persevering through the online ups and downs, remaining visibly unaffected by whatever turd is being thrown your way and still getting to the work day with the intention of improving every part of the consumer experience is what defines the success of the less-than-half-a-dozen proprietors that have been continually winning. Winning can be reduced to profitability or in this market just keeping your business alive. 

Another characteristic of the brands that are fostering success is how they collaborate with other smaller brands, elevating their brand by elevating another. This type of move reinforces the roots of where they came from by honoring the draft class of younger, smaller brands that have less visibility. This has worked more times than not and if things go sideways, the winning brands handle the drama offline. Any time the drama between these types of collabs enters the public online space it takes a piece of the larger brand back, regardless of the attention or engagement gathered. As much as the old adage “no press is bad press” is still a thing, a brand’s favor with consumers now more than ever can disappear into a wash of irrelevance if the narrative online paints them unfavorably. At some point the consumer gets tired of the story and that burnout point approaches fast as the world grows smaller the more it becomes interconnected. 

What really stands out are the brands that continue to sit just above the line of obscurity, gathering engagement and conversation when needed, while creating a consistent product. As they grow, their brand name becomes more common and organically becomes a fixture in the space for as along as they can maintain it or until there is some legal duress that throws the trajectory for a loop. There are two brands at the moment that come to mind that are facing this sort of situation. There are also those types of brands that are designed to edge lord the entire business crossing into sub culture conversations that touch cannabis. Selling cannabis along side the open legs of porn stars or other types of lurid hooks. At some point these hooks lose their allure and the brands will either continue to push the limit or rebrand into the mainstream. That didn’t work out too well for Vice media, but that’s another conversation. The extreme marketing can work on creating virality and hype but maintaining that success when the focus is on how you are selling instead of what you are really selling—which is weed, in case we forgot—can go sideways real fast.

Calculating Costs

So with all this in mind, I am trying to do something with my brand that will try and meet a few of these worlds while reaching what matters most, consumer value. Looking at the retail numbers, at least in California, cost seems to be the number one thing consumers value the most. Which is a bit disheartening although understood when ruminating on the egregious taxes bestowed on the consumer shopping in the California retail cannabis market. There are suggested prices for top shelf product that are displayed along with the eternal sale price of $35-$40 for an 1/8th. What we would like to be paid compared to what people will pay for is a rub, especially when looking at the prices of some products in fancy unregulated packaging on telegram. As much as growers market how they grow it matters less to the consumer if there is a close to equivalent product for ten dollars less. Also if you come out with a listed product at $35-40 an 1/8th you’ve screwed yourself into what is called the retail dead zone. You can discount a product to that price but for your sake don’t come in at that price thinking you’ll be able to match the consumer perceived value of a discounted established brand. Consumers like to feel like they are getting a deal on that jar or bag. Also after taxes they end up paying the $55-60 but the delta goes to the state, the silent and suffocating partner of every legal cannabis company. 

Consumers also value a cannabinoid analysis more than the actual product. Which is extremely frustrating and everyone has been yapping about how this is a terrible value metric for good while, and yet it’s barely moved the needle. What has moved the needle is the lack of testing in the black market and how those buyers care more about aroma, look, and packaging more than a test. That is a gift from the black market that is helping the rest of us when it comes to selections made based off THC numbers. I’m going to try and push against this with the selections I’m making but I can’t pretend that I don’t exhale easier when a test comes back over 25%. It still matters, and even more in the smaller market states. A smart approach when you are selling your brand to consumers is to weave in the dialogue how much more value there is in your product than just one number. 

The Consumer Is Your Mirror

So let’s say you’ve got some heat and fresh packaging and you’re ready to start selling to retail locations. If you haven’t started developing relationships ahead of time with retail ownership, good luck. The amount of competition in the market is staggering and it makes sense when you do the math at how much cultivation is being backdoored when you stack up the total volume of metric tons produced to the demand from retailers. This backdooring has also created an undefeated black market where customers can get fresher product faster and at a lower price. Accessing shelf space at a dispensary to sell your flower is a cut-throat game, and if you think that getting on the shelf is the final mountain to climb, think again. Once you have the shelf space, you have to be present as much as possible at the retail and not only develop solid relationships with the staff at the store but also the customers, number 1 the customers. This could be looked at as a chore but really it’s your opportunity to maintain the relationship with the retail location with authentic customer outreach, because if your product struggles to sell that shelf space will evaporate. I tried this approach in a smaller market that was vocally unhappy with the state program and to this day there are still Reddit posts of the drops we did 3 years ago. This was directly due to myself as the grower, not a rep, communicating as much as possible with the retail buyers. I cannot recommend this enough to new brands, your people matter more than anybody else. They are the ones that keep you going and will be there to support your efforts as you grow and face adversity. Your customers must be invested in who you are, your products and your success. It is more like this in cannabis than any other market. The further a brand gets away from their consumer investment into their brand the quicker they fall. The consumer is your mirror, hear them out, listen to what they ask for, what they are happy with and what didn’t land. If something doesn’t land then it’s up to you to make it right and if you have been developing the relationships you will for sure be given the chance to make it right. 

So you might have slogged through licensing and starting up a business. You might have hired a high end marketing consultant to build you a logo. You might have finally got your grow team up to speed and your harvest batches are hitting the marks. None of that matters unless you have built a loyal customer base that you are in service to. 

It doesn’t matter how good your weed is unless people enjoy buying it as much as they do smoking it. So get out of the warehouse or off the hill and start cultivating the joy that got you growing in the first place with the people that are paying your power bill.

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Cannabis advocates, executives and investors are celebrating the Drug Enforcement Administration’s reported decision this week to reclassify marijuana under federal drug laws, a development that spurred rejoicing from coast to coast and a spike in cannabis stock prices. The celebrations were tempered, however, by the reality that the decision falls short of the full marijuana legalization that determined activists have been seeking for decades.

On Tuesday, the Associated Press reported that the DEA had decided to follow a recommendation from the U.S. Department of Health and Human Services to reschedule cannabis under the Controlled Substances Act (CSA), citing five unnamed sources familiar with the matter. Under the recommendation, marijuana will be changed from Schedule I of the CSA, the most strict classification intended for drugs with no medical value and a high potential for abuse, to Schedule III, a group including the drugs Tylenol with codeine and testosterone.

The groundbreaking decision to reschedule cannabis will facilitate research into the medicinal benefits of the plant that could lead to new treatments for an unknown number of physical and mental health conditions. As a Schedule I drug, cannabis research was subjected to the strictest regulatory conditions under federal law, hampering studies that could result in meaningful medical advances.

Rescheduling cannabis under federal drug laws will also have significant impacts on the regulated cannabis industry. Perhaps most significantly, the change will ease access to banking services and free licensed cannabis companies from IRS rule 280e, which denies most standard business deductions to companies selling Schedule I substances. 

Pot Advocates Hail DEA Decision

After the DEA decision to reschedule cannabis was reported by the Associated Press on Tuesday, the move was hailed by policymakers, cannabis activists and entrepreneurs as an historic milestone in U.S. drug policy reform. In Colorado, one of the first two states to legalize recreational marijuana in 2012, Democratic Governor Jared Polis hailed the historic moment.

“I am thrilled by the Biden Administration’s decision to begin the process of finally rescheduling cannabis, following the lead of Colorado and 37 other states that have already legalized it for medical or adult use, correcting decades of outdated federal policy,” Polis said in a statement. “This action is good for Colorado businesses and our economy, it will improve public safety, and will support a more just and equitable system for all.”

Chuck Smith, president of the board of directors for Colorado Leads, an alliance of cannabis business leaders created to educate the public and policymakers about the importance of a safe and regulated cannabis industry, said that “reclassification under Schedule III will address the 280e tax issue that has unfairly forced state-legal cannabis businesses to pay a far higher effective tax rate than other legal businesses. Allowing marijuana businesses to start deducting ordinary business expenses will allow Colorado companies to retain more revenue, employ more workers, and further invest in their surrounding communities.”

Ali Garawi, the co-founder and CEO of California independent cannabis operator Muha Meds, said the rescheduling of cannabis will allow funds that are now going to taxes to instead be invested in the growth of the company.

“Like many in cannabis, we have had to really think outside the box in terms of financing. At Muha Meds, we’re entirely self-funded, which has forced us to be incredibly calculated with growth. No longer bound to 280e Tax Regulations leftover from the war on drugs, we will be able to utilize funding that we didn’t have the right to before,” Garawi writes in an email to High Times. “We are looking forward to tremendous growth opportunities and some ease of restrictions in terms of just running a business.”

Bob Groesbeck, co-CEO of Planet 13, a multistate operator that owns what is billed as the world’s largest dispensary in Las Vegas, said that the DEA decision will also result in easier access to traditional banking services for cannabis companies. Advocates of regulated cannabis in Congress have offered legislation to allow banks to serve marijuana businesses over the last 10 years, but so far the Senate has failed to approve the bill.

“Rescheduling cannabis should pave the way for much-needed safe banking solutions. Safe banking in the cannabis industry provides a secure environment for financial transactions, granting access to essential services like checking accounts and loans,” Groesbeck noted. “It ensures transparency, reduces costs associated with cash handling, and offers consumers safe and convenient payment options. Overall, safe banking is crucial for industry growth, regulatory compliance, and enhancing consumer experiences.”

Activists Call for More Siginificant Reform

Although the rescheduling of cannabis was hailed by much of the cannabis community, the DEA decision does not achieve the full legalization of cannabis that has been fought for over decades, leading activists to call for more significant reform. Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws (NORML), said that marijuana should not be regulated by the CSA at all, noting that commonly used but potentially dangerous drugs such as alcohol and tobacco are readily available to adults.

“The goal of any federal cannabis policy reform ought to be to address the existing, untenable divide between federal marijuana policy and the cannabis laws of the majority of US states,” Armentano said in a statement from the group. “Rescheduling the cannabis plant to Schedule III fails to adequately address this conflict, as existing state legalization laws — both adult use and medical — will continue to be in conflict with federal regulations, thereby perpetuating the existing divide between state and federal marijuana policies.”

Sarah Gersten, the executive director of Last Prisoner Project, a nonprofit working to secure the release of all individuals incarcerated for cannabis offenses, said that the group will continue advocating for more wide-reaching reform.

“Last Prisoner Project believes that complete descheduling and full legalization of cannabis is a necessary step towards correcting past injustices and creating a fair and equitable criminal legal system,” Gersten said in a statement from the group. “We will continue to work tirelessly to ensure that individuals burdened with past cannabis convictions have their records expunged and that all cannabis prisoners are released, regardless of the federal scheduling decision. Despite not achieving full legalization, we must use this historic moment to push the fight for cannabis justice forward, and we intend to do so by leveraging this reclassification for broader criminal legal reforms as outlined here.”

Weed Stocks Rally

Despite falling short of marijuana legalization, the DEA rescheduling decision sent share prices of cannabis stocks to significant gains in Tuesday trading. Multistate operator Trulieve spiked nearly 30% Tuesday afternoon, CNBC reported, while Curaleaf jumped 19% to a 52-week high. 

MarketWatch reported that Toronto-based TerrAscend was up more than 25%, while Green Thumb Industries Inc. rose by more than 22% and Cresco Labs Inc. climbed nearly 14%.

Emily Paxhia, co-founder of cannabis investments firm Poseidon Investment Management, said she expects a “surge in liquidity as sidelined capital enters the market, drawn by the potential for legal businesses to thrive” as regulated cannabis companies face off against the entrenched unlicensed cannabis market.

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Maine’s regulated adult-use cannabis industry generated more than $200 million in sales last year, an increase of 36% over 2022, according to information from the state Office of Cannabis Policy. But cannabis business owners who feel that Maine’s cannabis market is becoming oversaturated say that the numbers obscure the challenges licensed operators will face in the not-too-distant future.

Maine’s licensed recreational marijuana retailers rang up 3.7 million transactions in 2022, raking in about $217 million in the process, according to information released by state regulators on Monday. The yearly total represents a 36% increase over the $159 million in sales recorded in 2022.

John Hudak, director of the Office of Cannabis Policy, said the 2023 numbers do not tell the whole story about the health of Maine’s cannabis industry.

“The sales numbers are up almost 40%. That’s a strong testament to how the industry continues to grow,” Hudak told the Portland Press Herald. “But hidden in these numbers, too, is a pretty significant decrease in price.”

Cannabis prices decreased by about 16% overall in 2023, Hudak said, a drop that indicates that Maine’s cannabis growers are producing too much weed. While consumers appreciate the lower prices, the drop in profits can be bad news for producers and retailers.

“Even with the increases in overall sales, the decreased prices do make it harder to operate,” Hudak said. “Eventually we’re going to see business closures.”

The Maine legislature legalized recreational marijuana sales in 2018, with licensed sales of adult-use cannabis beginning in October 2020. Earlier legislation that legalized personal possession and home cultivation of cannabis went into effect in 2017.

Prices Dropped More Than 50%

The early days of regulated recreational marijuana sales in Maine saw limited supply, resulting in high prices for consumers at the state’s retailers. But as more licensed operators ramp up their businesses, oversupply has become a significant issue for Maine’s legal cannabis industry.

The average price of a gram of smokable cannabis flower was $16.68 when recreational marijuana sales began three years ago. In December of last year, the price had dropped to $7.53 per gram.

Mark Benjamin, owner of the Botany cannabis dispensary in Rockland, said foot traffic has climbed steadily since he opened the shop in late 2021. But with falling prices coinciding with an increase in licensed retailers, he and his staff have created new incentives to encourage customers to spend more. 

“There may be tens of millions of dollars flowing into (the market), but it is certainly spread out across more stores,” said Benjamin.

With his business thriving, Benjamin is set to open a new Botany shop in Belfast, Maine in the next few days. But he acknowledges that some business owners have had a more difficult time succeeding, particularly those who do not have ready access to capital.

“Everyone was dropping and dropping their prices in order to get enough cash in the door to cover their costs,” he said. “The weaker players are starting to drop out of the market,” he said.

Hayden Stokes and Zach Dolgos are the owners of The Happy Canary, a cannabis cultivator that has been supplying Maine’s medical cannabis industry for the last six years. In December, they opened their Blue Lobster dispensary in Casco, Maine, the town’s first recreational marijuana retailer. Stokes said they hope to gain the license needed to grow for the adult-use market soon, seeing vertical integration as the key to the company’s success.

“Having our own retail is a big part of the solution,” he said.  “When you have your own retail, you can set your own fate.”

Hudak said that he believes that Maine’s cannabis industry will see a few more years of sales growth before the yearly total begins to plateau. David Vickers, owner of Origins Cannabis Company in Augusta and Manchester, said that he believes much of the industry’s growth will come from southern coastal towns.

“You’re going to continue to see people flocking to Maine,” he said. “I don’t think we’ve hit the summit yet, but I think we’re certainly getting there. There are only so many people in Maine.”

Vickers, Stokes and Benjamin all operate businesses that serve or will soon serve both the recreational and medical cannabis markets. They believe many medical marijuana businesses will soon either switch to recreational marijuana or end operations completely.

In April, the Office of Cannabis Policy released a report warning about a “mass exodus” of the industry’s medical caregivers. In 2016, the number of caregivers hit a peak of about 3,250. By December 2023, the number had fallen to 1,763.

“I’m seeing the medical side suffering as the recreational side increases,” Vickers said. “That to me, long term, may not be a good thing for Maine. We have so many small farmers that may very likely lose their livelihood.”

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While states throughout the U.S. continue to embrace the new legal wave of cannabis, it doesn’t eclipse the strife within the industry. Over the past few years, the industry has faced issues around oversupply, falling prices, stringent regulations and distribution problems, among others, which often fall especially heavy on cultivators.

Now, new research findings show exactly how these employees are faring in the current climate. According to the third edition of the U.S. Cannabis Cultivator survey from Wells Fargo, a majority of growers have a grim outlook on the current state of the cannabis market, as reported by Green Market Report. 

Majority of Cultivators Feel Negatively About State of Industry

The survey, including responses from more than 400 growers across eight U.S. states, found that 58% of growers said they feel “bad” or “terrible,” in reference to the current cannabis market. Specifically, 34% answered that “I feel terrible. Things look awful,” while 24% said “I feel bad. Things don’t look good.” 

Additionally, 31% of respondents said they feel “okay,” while only 9% of cultivators said they feel “good” and 2% said they feel “great” about the current state of the market.

The survey also looked at responses by state, finding that California (which also has the highest number of growers) felt most negative about the current market, with 66% of cultivators expressing a “bad” or “terrible” outlook on the market. Most of the negativity was because of falling wholesale prices, with 34% of respondents citing this as their main source of stress, followed by restrictive regulations at 29% and lack of distribution avenues at 10%.

As the largest cannabis market in the world, California saw a dip in cannabis sales in 2022, the first since adult-use sales launched in 2018. The loss is likely due to a decreased price per pound of cannabis across the state.

Falling Prices a Main Obstacle for All Cultivators

California growers weren’t the only group to express concerns about falling prices.

Approximately 87% of cultivators said they are selling wholesale flower for $1,250 per pound or less, up from 83% and 74% at the same level in fall and spring 2022, respectively. Perhaps even more shocking, a majority of cultivators also reported selling flower at $750 per pound or less, below the average breakeven price of $800 per pound. This ultimately makes profitability a challenge for many growers. 

This assertion reflects a recent survey from Whitney Economics, which found that only 24.4% of cannabis operators in the U.S. are profitable. The consulting and research firm also signified that there is little relief in sight for operators, forecasting seven quarters of slower-than-normal growth in the future. Also nodding to some of the concerns of cultivators, the survey noted that the success of cannabis businesses is largely dependent upon the regulatory structure of the states in which they are operating, among other factors that may be beyond their control.

In It For the Long Haul

While the current outlook may seem bleak, cultivators widely indicated that they wouldn’t be leaving the industry anytime soon. The survey found that only 19% of growers planned to partially or completely exit from the industry, a decrease from 22% and 27% in fall and spring 2022, respectively.

This persistence could prove problematic, potentially exasperating oversupply issues and causing continued price drops. The survey found that 42% of cultivators plan to increase cultivation over the next 12 months. 

However, the report also shows that growers are investing in nutrients (65%) and soil (45%), essentially looking to optimize production while keeping costs low. To hammer in that point, few cultivators planned to drop cash on high-cost items like lights (32%), irrigation systems (30%) and extraction equipment (16%).

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TK flower and TK eddies.

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Cannabis consumers in Washington state may soon be subject to a “dank tax.” 

Lawmakers there have introduced a bill that would tax marijuana products based on the percentage of THC.

In other words: the stronger the weed, the higher the price.

“Research indicates that between 12 and 50% of psychotic disorders could be prevented if high potency cannabis products were not available,” said Washington state House Rep. Lauren Davis, one of the sponsors of the bill, as quoted by local news station KXLY.

Davis believes that the measure is necessary to combat what she describes as a “crisis.”

“If we fail to act now to counter the emerging public health crisis created by high potency cannabis products, we will soon have another epidemic on our hands,” Davis added.

The legislation, House Bill 1641, would restructure “the 37 percent cannabis excise tax to a tax of 37 percent, 50 percent, or 65 percent of the selling price, based on product type and tetrahydrocannabinol (THC) concentration,” according to an official legislative summary of the measure. 

“[Thirty-seven] percent of the selling price on each retail sale of cannabis-infused products, useable cannabis with a THC concentration less than 35 percent, and cannabis concentrates with a THC concentration less than 35 percent,” the summary read. “[Fifty] percent of the selling price on each retail sale of cannabis concentrates and useable cannabis with a THC concentration of 35 percent or greater but less than 60 percent; and 65 percent of the selling price on each retail sale of cannabis concentrates and useable cannabis with a THC concentration greater than 60 percent.”

HB 1641, which had its first public hearing last week, would also establish the following, per the legislative summary:

“Marketing and advertising prohibitions on advertising a product that contains greater than 35 percent total THC … Prohibits cannabis retail outlets from selling a cannabis product with greater than 35 percent total THC to a person who is under age 25 who is not a qualifying patient or designated provider … Requires cannabis retailers to provide point-of-sale information to consumers who purchase certain cannabis products and requires the Liquor and Cannabis Board to develop optional training for retail staff … Requires mandatory health warning labels for cannabis products that contain greater than 35 percent total THC … Requires cannabis products to be labeled with the number of serving units of THC included in the package, and with an expression of a standard THC unit in volume or amount of product … Directs $1 million annually from the Dedicated Cannabis Account for targeted public health messages and social marketing campaigns.” 

Not everyone is on board with the proposal, which has a dozen sponsors. 

Carol Ehrhart, who owns a dispensary in the state, told KXLY that the proposed tax increase could lead to some adverse consequences. 

“There’s this, you know, idea that the THC is going to get me further along. The higher that we make those prices, the more apt someone is to buy the higher priced item because they think they’re getting more bang for their buck when they’re really not,” Ehrhart told the station.

“A product that we’re selling right now for $40 that’s over the 60% threshold would go to $47, almost $48. You know, that’s seven or $8 in taxes on one piece of product,” Ehrhart added.

Washington became one of the first two states to legalize recreational cannabis in 2012, when voters there approved a measure that legalized possession and paved the way for a regulated market. (Colorado also approved a legalization measure the same year.)

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In 2021, product prices plummeted in hopes of competing with the illicit cannabis market. But at what cost?

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You’ll never guess the answer.

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