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Glut rut: Is right-sizing a rite of passage?

Growers in Humboldt County, California say they are facing an “extinction event” that may sound familiar to those who have experienced supply gluts and price drops in other new cannabis markets grappling with right-sizing, reports High Times.

Previously, a pound of quality outdoor-grown cannabis sold between $1,200 to $1,600/pound. This year, prices have dropped as low as $400/pound  — with no bounce-back expected among some for years to come.

Possible solutions

Some smaller and legacy cultivators, who pay the same tax rates as larger companies, say that allowing well-funded bigger players to participate has driven down prices with high volume — something that’s easier to survive with more capital. They would like to see licensing capped and/or tax restructuring to help them compete, which are two big revenue generators regulators may not want to lose.

And market expansion could obviously help too: interstate sales are being explored. And within the state, municipalities which chose to opt out of sales could also open up.

Lessons to learn

Some level of right-sizing could be difficult to avoid in emerging adult-use cannabis markets, but there could be lessons from oversupplied markets that could help mitigate risk. 

In Canada, producers have sold just 20% of their output since legalization in 2018, reports Marijuana Business Daily, partly due to scaling up production of low-quality products and poor retail planning. (Read: How to not sell cannabis (See also: Ontario))

In Oregon, which expanded from medical to adult-use in 2015, wholesale prices have rebounded after grows shuttered or switched to hemp production. The ones that closed, according to experts, may not have had enough capital or business-savvy to survive the competition. 

“We were the first ones to go through the nightmare,” said one Oregon grower. “Some of these other states are next.”

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