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Cannabis Prices Fall as Inflation Explodes – Here’s Why
COVID-19, Inflation, and Cannabis
It’s no secret that the primary reason for recent inflation levels is due to the ongoing COVID-19 pandemic. Throughout the last two years, we’ve seen a number of disruptions to our economy directly caused by this pandemic, including supply chain issues, labor market challenges, and pent-up demand (i.e. with vaccines, there’s been a huge demand for travel).
Overall, this has led to the 9.1% inflation rate mentioned above. At the same time, interest rates have also skyrocketed since May 2020, peaking at 6.8% in April 2022.
COVID-19 also had an impact on the cannabis industry. When lockdowns were initially instituted in March 2020, there was a large increase in cannabis sales and cannabis stocks. This increase remained gradual throughout the following years and has stabilized in many areas.
However, some places have also seen a recent decrease in cannabis sales, including Colorado and Oregon. And this decrease is in many regards a direct result of inflation.
Yet, it’s not that inflation is causing cannabis prices to skyrocket. In fact, we’ve seen quite the opposite occur – with many regions seeing some of the lowest cannabis prices throughout their legal industry. More specifically, the overall price of flower, edibles, and vape products has declined by 16.7%, 11.8%, and 12.4% respectively.
The direct relationship between inflation and a decline in cannabis sales is simple. With prices going up for everything, people are allocating less money towards their cannabis habits.
But how inflation is impacting the cannabis industry as a whole is much more complicated – incorporating many moving factors from legalization to supply and demand.
Other Factors of Cannabis and Inflation
Since cannabis is currently managed on a state-by-state basis, there are varying factors to consider depending on the state. For example, in Nevada, cannabis pricing volatility (about a 3% decrease over the last year) as it’s a major tourist destination. The same is true for California.
However, in a state like Michigan, where tourism isn’t a big option for sales, cannabis prices have dropped 24% over the last year. With the average item price of all cannabis products being about $25.00 in July 2021 and dropping to around $19.00 in June 2022.
It’s important to note that the price of an average item largely depends on consumer trends. For example, cannabis edibles prices vary depending on the milligram (mg) THC count. In single-serving products (around 10mg), the price is around $5.00. But in larger quantity products (around 100mg) the price is $20.00.
In terms of the consumer, you’re saving more by purchasing the larger quantity. And this is reflected in the average item price, which will rise as more are buying said products.
Therefore, determining inflation’s effects on average item prices isn’t the most effective. Instead, it’s in our interest to take a look at specific products and how those have been influenced both by inflation and consumer trends.
Specific Items Experiencing "Shrinkflation"
Overall cannabis consumption among Americans has been on the rise over the last decade. With 48.2 million (about 18%) Americans using cannabis in 2019.
In terms of specific product types, flower is overwhelmingly the most popular. With 61% of consumers preferring it to other products – followed by concentrates at 22% and edibles at 9%.
These product popularities hold a major significance to inflation and the simple reason is they’re sold by weight.
In other areas of inflation, such as food, it’s common for a manufacturer to decrease the packaging size (and net weight) of a product while selling it at the same price. This helps to ensure inflation is being met while keeping a product the same price for consumers.
However, in cannabis, this is impossible. For flower and concentrates (the two most popular products) are sold by weight. In other words, you can’t reduce the amount of cannabis found in an eighth – you can only raise or lower the price of that eighth.
Through this marketing, cannabis has experienced a “shrinkflation” even with more American consuming it and more states legalizing.
Weed Prices 2022: Legal vs Illicit Markets
The price of cannabis varies greatly depending on where you live. For example, the price of an ounce of weed in California averages $257 USD, whereas neighboring the state of Oregon averages $211 USD. Yet, if we travel across the country to New York, the average price is $337 USD.
Within the United States, prices vary for one simple reason – the legal supply of cannabis must come directly from the state. Therefore, in places like California and Oregon where cannabis has been legalized for some time, there’s plenty of supply. On the other hand, in places like New York where the industry is infant, the supply remains low in comparison.
Not to mention, black market competition. Even though legal industries are popping up all over the country, illegal black market weed sales continue to rise.
This is an issue in and of itself that is just as complex as cannabis and inflation. However, to sum it up briefly, the over-regulation of cannabis in certain states has led to more supply than demand. Since interstate commerce remains federally illegal, many farmers have simply turned to the black market in order to properly sell their cannabis.
This supply often finds itself in states where cannabis remains illegal and has allowed the value of an ounce of weed to be higher than in legal states.
Naturally, when marijuana market prices are low and illicit black market sales are direct competition, and those being hurt most are the people trying to run a legal business. While inflation doesn’t directly affect the cost to the consumer (in terms of cannabis), it has had its impact on transport costs and employee wages.
Therefore, many businesses have had to allocate more income towards the direct effects of inflation while keeping the price of products relatively the same.
Marijuana Prices of Previous Generations
While mostly illegal, marijuana has been a consistent product of the United States since the 1960s. And throughout that time, we’ve seen the country undergo other periods of recession.
Unfortunately, there are no official ways to determine the price of marijuana sixty years ago. This is simply due to the fact that it remained illegal and therefore, the information wasn’t sought after.
Still, the price of an ounce of low-quality cannabis was reported to be about $10 in 1970. As mentioned, an ounce today will run you about $250 – with prices varying depending on where you live.
To give some idea of the overall price of inflation since then, we can compare this to the price of an ounce of gold, which was $39.90 USD in 1970 and $1,060.00 USD in 2015. In other words, the price of gold went up over 2500% with the price of an ounce of marijuana rising about the same percentage.
In another comparison, between 1990 and 2018, the dollar saw average inflation of 2.36% per year, culminating to 92.22% overall. Again, cannabis saw relatively the same inflation.
Admittedly, there are certain factors not being discussed within these figures. Most importantly, how the quality of marijuana has also risen over the past 60 years.
In 1970, cannabis contained only around 1% to 3% tetrahydrocannabinol (THC). Whereas today, the average bud has around 18% to 20%. So, with that said, while the price of cannabis has been relative to overall inflation, it has only improved in quality.
Final Word
We won’t understand the direct effects this inflation (and potential recession) have had on the cannabis market until years past, giving us time to reflect and analyze changes within the industry.
Since cannabis prices have remained relatively the same (in terms of inflation) over the past half-century, chances are we won’t see too significant an increase. Though, the most notable difference with future statistics is the fact that we’ll have a legalized market to keep track of.
Still, it can be assumed that since the cost of manufacturing is rising, so will the cost to the consumer. Though, the price of this increase is likely to come more gradually (and less “in your face”) in comparison to other commodities, such as gas and food.
