As states increasingly legalize cannabis for adult-use, many look towards Colorado – the state with the first such program – as a gauge for what states and businesses (and customers) might encounter in the future. Colorado has served at different times as a model to follow and a cautionary tale to avoid.
In 2012, when Colorado legalized ‘recreational’ (adult-use) cannabis use, many celebrated, others lamented society’s hastening downfall, and others looked toward future business opportunities. The floodgates of cannabis entrepreneurship were opening, even if the opening was regulated. If you had predicted that 10 years later those floodgates would be closing, you likely would have based your prediction on anticipated changing political currents, unwieldy regulations, or federal prohibition enforcement. You would have been wrong – not about those floodgates closing, but about the cause.
Wholesale prices for cannabis flower reached a Colorado-low this past summer, with prices falling 60% from January 2021 ($1,721 per pound down to $709 in July 2022), creating increased worry about where the market was headed. Since July, prices have continued to fall – dipping another 7% to $658/pound by mid-September. Numbers for cannabis allocated for extraction aren’t rosier, down to $277 (bud) and $76 (trim) from starting points of $376 and $325, respectively. When looking at Colorado trendlines, the downward price trajectory has been constant with the exceptions of explainable blips of price increases during COVID when many businesses recorded record profits. Though not all pricing news is bad – prices for immature plants have increased and seed pricing is steady – most numbers are not going in the direction cannabis entrepreneurs had hoped.
Going hand-in-hand with the decline in retail prices is a drop in sales for cannabis retail businesses. While over double original sales in 2014 (when sales of licensed product began), sales are down over 30% from all-time highs reached in 2021. The retail sales picture will end the year a bit rosier after fourth-quarter sales numbers are included; however, sales will likely not meet the 2-billion-dollar threshold for the first time since 2019. While sales numbers have not seen the same precipitous declines as the wholesale market, the numbers paint a picture of tightening margins for producers in the face of healthy demand. That does not bode well for the future of the supply-side of the equation.
Out of all of the sales data comes a central question – why?
Some in Colorado point to artificially high pandemic numbers or reduced ‘cannabis tourism’ as states increasingly adopted their own cannabis programs. Some point to high barriers to entry and barriers to continued operation (high taxes or an impossible banking/investment environment), but many also see in the declining numbers and shuttering businesses a maturing market.
That is little comfort to business owners squeezed out or producers facing economic headwinds – and the ‘maturing market’ picture is not perfectly painted. There are indeed a number of factors making business in Colorado harder than it seems it should be – but some see in the numbers (it is like the people staring at those 3-D pictures in the mall as their eyes glaze over) a market fading from its glory (the only game in town) to a period where it is driven by the same competitive forces of long-established businesses.
Over at MJBizDaily, Bart Schaneman’s post about the importance of marketing and branding for Colorado cannabis companies could apply to any market where competition for share is high – regardless of the headwinds unique to the cannabis market. Schaneman provides a glimpse into some of the core successful Colorado businesses and how they have devoted additional energy to marketing and branding to spur growth in a challenging market.
That focus on branding and marketing is a lesson businesses in other cannabis-friendly states should note. From the establishment and protection of intellectual property (copyrights, trademarks, and patents on genetic material) to well-crafted marketing strategies the entire cannabis industry is coming of age. Of course, many in the cannabis space would quickly point out that they started out with a mature philosophy, and that is true. Others, however, were so busy during market highs (figuratively and literally) that they did not need to focus so much on their competitive positioning – it seemed the pie had an infinite number of pieces.
As everyone sees that there are a limited number of pieces of the pie, positioning and protecting intellectual property as a part of that positioning is crucial.
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