Although the country just became the second nation to legalize marijuana earlier in 2018, Canada has already began to become an example for the rest of the world. While the United States has been tentative about legalizing marijuana, our neighbors up North have figure out how to do so in an effective manner. The country has learned that it did not need to create completely new facilities to produce cannabis, yet can adjust it’s current infrastructure to do so. Greenhouses that once were used to grow consumer products are now being restructured with air filters and light-blocking shades to create the perfect conditions for cultivating marijuana.
“We haven’t changed the footprint… We’ve just changed the crop.” – Rob Hill, CFO of Emerald Health Therapeutics, 2018
Many tomato and pepper plant growers have already began to replace their crops with cannabis plants. According to USA Today, these new, large scale operations are the future of mass production of marijuana. Obviously the goal of most producers of marijuana is to make money, however, these large-scale operations have real implications on the affect of the black market as well. According to Trevor Hughes, these highly sophisticated operations will drive the price of marijuana so low that black marketeers would have no choice but to give up.
Apart of their legalization of marijuana, Canada requires that cannabis be grown indoors by only licensed providers. Companies such as Emerald Health Therapeutics, that grows marijuana in Delta, Canada, have not looked at the regulation as an obstacle, but an opportunity. The company partnered with a longtime produce operation, Village Farms, in a joint venture of their own. Pure Sunfarms, a product of Emerald Health Therapeutics and Village Farms, is already capable of producing ridiculous amounts of marijuana. According to Trevor Hughes,
“Pure Sunfarms [is] capable of producing a staggering 82 tons of marijuana annually from the 1.1 million square foot greenhouse complex about 30 minutes south of Vancouver.” – Trevor Hughes, USA Today, 2018
Countries all over the world are watching Canada very closely after their legalization of marijuana. The financial implications of the new law can be ground breaking for many countries around the world. According to Hughes, Trevor Hughes states that just three years ago, wholesale marijuana was selling for $2,000 per pound. Wholesale marijuana currently sells for $600 a pound on average in a few states that have legalized it in the USA, making it far more financially valuable than any other crop. When analyzing on per-plant profit margin basis, lettuce, tomatoes, potatoes, and even almonds are all usually measured in fractions of a penny.
Since its cultivation is widely still illegal in many places in the US, many farming operations have decided to stay away from marijuana, fearing potential prosecution. By Canada making it legal nationwide, they actually combat the problem of marijuana related crime face-to-face. With the ability of many to produce marijuana legally, the country has already driven down the price of cannabis. By driving down the price, experts agree that it will assist the Canadian government in ridding itself of cartels and other black-market dealers. According to BDS Analytics,
“In Colorado, for instance, the price of smokable “flower” has dropped 40 percent since January 2014, from $7 a gram to $4.19 a gram today,” – BDS Analytics, 2018
As laws continue to grow with the industry, it is clear that Canada is just the beginning of what we will see with marijuana growth. Hughes states that indoor growers of legal and black-market marijuana consumed 4.1 million megawatt-hours of electricity in 2017. That number is roughly equal to the total amount of electricity generated by the Hoover Dam, according to New Frontier Data. Yes, the Hoover Dam! Though it may be expensive to grow indoors, those who harvest the plant can cultivate year-round. In an industry with constant demand and a growing consumer base, this is extremely important for those who are not located in warm weather climates.
Since regulation has begun to flow through the United States and to our neighbors above the border, the price of wholsale marijuana has continued to fall. As we begin to develop proven tactics and effective methods of cultivating the plant, I am sure that the trend will tend to continue. I’m also very curious to see what the ultimate price floor for wholesale marijuana will be. As more and more producers come into the market, prices will be undercut and consumers will have less loyalty. At it’s current price, marijuana is still considered a boutique crop, however, as the market grows it will be interesting to see its value change. The following graph from Cannabis Benchmarks is a great visual of the downward sloping price curve that currently characterizes legal marijuana.
Let us know your thoughts on the current state of pricing in the cannabis industry!