Pandemic pricing and demand likely saved a number of cannabis businesses in Oregon, a situation discussed in regard to Colorado in an interview featured in last week’s Premium Report. However, the regression to pre-pandemic pricing is once again putting cannabis businesses at risk. Perhaps the confluence of larger harvests, price erosion, and the license moratorium will finally dent supply in Oregon, allowing prices to stabilize at last.
Oregon cannabis prices have staged a limited recovery over the past several weeks, with outdoor product gaining 19.9% since hitting a year-low level in mid-July. Outdoor has traded up amid talk of a later-than-typical harvest due to the delay in planting caused by heavy spring rains. Greenhouse product also staged a rally from mid-July through mid-August, pushing prices up until experiencing a decline in mid-September. Indoor cultivated flower also experienced an uptick in pricing over the same time period, but as with greenhouse grown flower, prices experienced another decline before leveling off to start October.
Generally speaking, strongly trending markets that develop high price volatility typically mean a reversal of the overall trend. While it is too early to call a bottom in Oregon cannabis prices, especially with the harvest imminent, the pandemic price effects have been completely reversed – and then some. This might be considered a “clearing” of the market, thus setting the stage for a steady but slow increase in cannabis prices.
Yet, the winds of change are blowing through the Oregon cannabis industry. Cannabis Benchmarks spoke to Casey Houlihan, Executive Director at the Oregon Retailers of Cannabis Association, to discuss the status of the Oregon market today and in the coming months. Houlihan has been on the front lines of the industry with political and industry contacts throughout the state, in addition to putting on events like the Oregon Interchange, where retailers and product vendors are guaranteed time with business connections.
Houlihan is seeing “a lot of retailers shutting down” and “growers turning in their licenses,” but noted the “amount planted this year exceeds the amount from last year,” illustrating the crosswinds prevailing in the Oregon cannabis industry. When asked about the smaller month-on-month wet weight harvests, Houlihan said, “late frosts and a wet June delayed plantings so a lot of plants are still in the ground.” He expects outdoor to start coming to market from late October to early November this year. He is seeing substantial greenhouse light-deprivation product in the market now, which might account for the downturn in greenhouse prices of late.
Regarding the moratorium, Houlihan is frank in his assessment: “it’s like a bandaid on a bullet wound.” He added that he is still seeing “people coming into the market who think they have the special sauce” to make money in cannabis cultivation. Houlihan has been witness to a beleaguered industry, with retailers slashing prices and growers flooding a weakened market with product.
Some thought the moratorium would lead to a bid under cannabis real estate and existing licenses. However, Houlihan said there was “an exodus from the production side as owners rushed production and licenses into the market,” resulting in sharply lower prices for cannabis property and licenses. Again, illustrating the crosswinds prevailing in the market, he sees multi-state operators expanding their Oregon footprint, “buying up additional market share.” Houlihan said businesses are “trying to sell cannabis properties with a license attached,” because prices are higher on package deals.
He said there is an exodus of consumers into the illicit market because the product quality is high and the prices are below those of lesser quality products in the legal retail space. Where retail stores are charging $250 to $300 per ounce ($4,000 to $4,800 per pound), consumers can find triple-A quality flower for $1,000 per pound in the illicit market. Houlihan said, “consumers pay as much as 75% less for quality cannabis in the illicit market.” He is seeing some of the best craft growers turning in their cultivation licenses, but not leaving the market; that is, highly skilled growers are moving to the illicit market. As he sees it, “the highest quality product is still in the illicit market” and the illicit market is thriving with deeply educated consumers, as the legal market remains under significant financial pressure.
So, while the winds of change are indeed blowing through the Oregon cannabis industry, they are crosswinds: the moratorium failed to lift prices for cannabis business and licenses, yet the illicit market and some specific, licensed craft cannabis outfits are thriving even as cultivation licenses are being turned in amid an uptick in cannabis prices.