Stabilization in the Northwest

The problems caused by a big oversupply of quality flower in Washington and Oregon have been well documented, and we’ve written about it numerous times in the pages of Marijuana Venture. The issue was simple: too many growers grew too much cannabis for the market and the price dropped like a rock. Quality grams for $5 are now as common in the two states as Trump scandals.

However, this is changing (not the Trump scandals — he continues to be a fraudster in way over his head), at least in Washington. Several major growers are now reporting a decreased supply and rapidly increasing prices. It makes sense: The weaker, less efficient, less prepared cultivators who couldn’t weather rock-bottom prices went bust, and the survivors are now seeing the results of that shakeout.

Washington had about 1,200 growers three years ago; today there are roughly 600. This is what capitalism, doing your homework and being prepared is all about, and it proves that the market always wins. It’s called supply and demand, and the shift to higher prices (just as I predicted) has happened as the supply has decreased.

In Oregon, which is two years behind Washington and Colorado, the oversupply continues. However, it will also balance out as the market determines prices and availability.

While my clinical view might offend some, it’s simply how capitalism works and no amount of wishful thinking or wanting to go back to “the good old days” of limited competition and extraordinarily high prices is going to change it. My guess is that the same cycle will happen in all the states where the market is allowed to speak. In other words, California and Michigan will go through it, as will the medical program in Oklahoma.

The only states that will be immune are the ones where the government creates artificial conditions that favor some businesses over others.

If a state limits the number of licenses it grants, awards special contracts and/or imposes rules that favor one business over another, you end up with an industry not solely governed by supply and demand. In the state intervention example, you have a form of state-sponsored monopoly.

Americans have typically been adverse to government interference of private businesses, as well as businesses that are supported by taxpayers and the state. (Unless of course it’s the farm bill or tax cuts for the wealthy; then apparently it’s okay if you’re a “conservative.”)

However, the allure of state-controlled business will always be there for some, as it can guarantee higher profits if manipulated correctly. That said, the downside is less choice, higher prices and lower quality products.

So the choice is simple:

1. Let the market decide. In this case, some will fail, others will survive, and the consumer will ultimately decide who wins. Retail prices will be lower, as will corporate profits, but consumers will have more choice and better products.

2. Let the state decide. Vertical integration, restricted licenses and special deals will ensure a lucky few have higher profits and a greater chance of survival. However, consumers will see fewer products, higher prices and generally lower quality.

In the end, my preference leans toward the former, as it favors the end consumer and ensures healthy competition.

 

Greg James

Publisher

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