David Rabinovitz, a cannabis-industry veteran, recently visited his local retailer in Massachusetts and bought two eighths of flower. He was struck by the drastic drop in price, as a product that used to cost $60 per eighth rang up at just $31.25 after a discount. However, Rabinovitz also felt a sense of dismay because he knows the market well and understands the underlying problem. Cannabis prices in Massachusetts are in free fall, hitting a historic low of $202 per ounce this January after touching $403 per ounce in March 2021. Many, including Rabinovitz, believe that they have yet to bottom out.
The obvious explanation for this is that supply is overrunning demand, which is a problem that Oregon and California have been struggling with as well. Massachusetts was transitioning from a medical-only market to a recreational industry in 2018, and at the time, little infrastructure was in place for such a pivot. Building indoor grow operations takes time, costing two years or more from permitting to construction to the actual grow. Massachusetts was the only Northeastern state to open for recreational use, bringing both in-state and out-of-state demand to storefronts. This formula led to soaring prices and also attracted investors eager to fund more grow operations.
As of Dec. 8, 2022, 95 cultivators were operational in Massachusetts, licensed for 2.1 to 2.86 million square ft. of canopy. Behind them are 24 final licenses approved for an additional 570,000 to 765,000 square ft. of canopy, with 180 provisional licensees seeking approval for 3.6 to 4.975 million square ft. of canopy. This pipeline of potential supply has led to the current oversupply and subsequent price drop.
Unfortunately, this problem is expected to get far worse, and there is plenty of blame to go around. Massachusetts regulators do not disseminate such information, and they have not cut back on licensing even as the current dilemma has begun to unfold. Many farmers are chasing falling wholesale prices, and as soon as the federal government lifts the ban on interstate commerce, all Massachusetts producers will have to pit their product, grown in costly indoor facilities, against comparatively inexpensive cultivation sites elsewhere.
Despite all of this, many more cultivation sites are under construction in Massachusetts. Companies like Theory Wellness plan to focus on small-scale, high-quality operations to avoid getting stuck with large grows in the long term. Building the best brands possible and focusing on brand loyalty as things get more competitive might be the best course forward for the long term.
