While the headline figures are interesting, even more intriguing numbers are buried within a new report by cannabis analytics firm BDSA about the U.S. cannabis industry, including figures that portend ongoing price compression in new markets and possible further industry consolidation because of that.
That’s according to BDSA chief Roy Bingham, who spoke with Green Market Report late last week about the new forecast and some of the key trends that he saw in their analysis.
Bingham said one of the most telling trends he’s noticed is downward-trending prices at retail outlets for consumers over the course of last year. He said that sort of price compression is likely to speed up with newer markets launching this year and in the near future.
Bingham said that BDSA found consumer cannabis product prices were down:
- 19% in Arizona
- 12% in California
- 6% in Colorado
- 21% in Massachusetts
- 37% in Michigan
- 14% in Nevada
“Part of the story here is that the new markets, when they get launched, they get launched with very high prices. But eventually, prices are going to normalize. Not completely, but they’re going to get closer to the mean, and they’re going to get closer to the prices in the West,” Bingham said. “Everyone needs to take that into account, when they’re looking at prices three times as high in those newer markets, that’s going to contract quite significantly, quite rapidly.”
Essentially, it’s a warning sign for companies in states such as New York and other new recreational marijuana markets, that businesses can’t count on initially high prices to keep their margins flush. BDSA’s take is the drop in prices for consumers is also driving much of the contraction that’s happening across a lot of the industry – and that trend may make its way into newer states sooner rather than later.
“This is really a major factor behind the contractions of the industry. But you think, okay, it’s all out in the mature markets. But the newer markets are contracting, (and) they might contract even faster and earlier on in their lifecycle than the mature markets,” Bingham said.
That said, BDSA’s report also provides industry insiders with some optimism, since they’ve detected a return to higher growth rates for both the global and U.S. cannabis trades, following a widespread downturn in 2022, which Bingham said he thinks will prove to be a “low point” for the industry as a whole.
“To see that the industry only grew 2% last year, it’s kind of an eye opener,” Bingham said. “We’re still projecting compound growth rate for the industry over the next five years of 13%, and obviously, that’s much more attractive than just about any other consumer products industry I can think of. So you know, going from $26 billion, up to $30 billion next year is growth at 14%. So we’re back on track for a good growth year next year, if our assumptions prove to be correct.”