How will the increase in California’s supply affect material sourcing?

For years, consumers have been paying top dollar across the U.S. for California-grown cannabis.

A recent study by the University of California, Davis indicates nearly 81% of cannabis grown in California is sold outside the state, which begs the question: How will that statistic impact the legal supply chain?

The 1996 passage of Proposition 215 provided cannabis entrepreneurs with a new opportunity — the ability to grow to grow marijuana legally for medicinal purposes. Since then, the price per pound of cannabis has fluctuated as more individuals in California began growing cannabis for financial gain. As a result, some cultivators began looking for alternatives to get a better return on their crops and sold their product out of state, which earned them 300% to 400% better return on their crops compared to selling in California.

With legalization, it’s possible that the amount sold outside California could drop because cultivators will be forced to sell in a regulated market or eventually have their operations shut down. An estimated $200 million annually will go toward enforcement in 2018 and beyond according to the state’s nonpartisan Legislative Analyst’s Office. It seems fair to say that will be one of the main challenges for the government when it comes to eliminating illegal operations or forcing them to make the transition to a regulated market.

To illustrate the volume of cannabis produced, the 81% of cannabis exported equates to 11 million pounds! That is a significant amount of product to bring into a market that will already have hundreds of entrepreneurs entering looking to take advantage of these new opportunities. Whether it be infused products or a new form of cannabis concentrates, we will see a wide array of new products.

In an interview with Nate Winokur, a California-based extraction professional, he stated “Technology has allowed manufacturers to create distillates which are high potency oils that can be easily used in various formulations making them a great source for infused products.”

Excess supply is not a new problem when it comes to commodities. Many other industries have found solutions when they’ve encountered the same challenge.

“For a developed, scalable operation, we should take a note of how the rest of the agriculture industry produces their extractable biomass: they grow it differently,” Winokur says. “Corn that ends up in the produce section of a grocery store is grown differently than the corn that is grown for extraction into things like corn oil or corn syrup.”

Utilizing this framework could help manage the excess supply without significantly affecting the commodity price, allowing entrepreneurs to sustain their brands rather than being forced to shut down because they cannot cover their operational cost to stay up and running.

The market for crude cannabis oil being used to make distillates is growing year after year. CO2 extraction combined with short-path distillation has allowed manufacturers to produce high-quality oils that different terpene profiles can be added to.

The industry could truly utilize a new production method that will help keep the cost down for manufacturers focused on oils as opposed to flowers.

The idea of two standards for cannabis production could be truly beneficial. It has worked for many years in the agricultural industry and should be applied to the cannabis industry. This framework can create an efficient model that can be duplicated nationwide and assist in creating a fair market price for a commodity that is only growing with demand.

Johnny Sayegh is a cannabis entrepreneur and adviser who has been providing insight on the cannabis industry since 2007. With his background in philanthropy, he hopes to leverage the industry to create social capital throughout affected communities. He currently serves as the CEO of Grassposts, a wholesale platform for raw cannabis on-demand in California, and can be reached at Johnny@Grassposts.com.

 

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