A Look at the Colorado MJ Market (Guest Blog)

GreenRushColorado takes a look at CO...

Why The Marijuana Market will Crush Estimates

In Colorado legal Marijuana is off and running in 2014 and the recreational market is bringing in huge revenues from an extremely small number of shops. Recreational shops who two months later still have lines flowing out the doors, and so much demand that the price of weed in Colorado is drastically different if you are buying medical, recreational, or black market product. Although it might be hard to believe the revenues coming into recreational stores in Colorado are only a sliver of the market and the majority of heavy cannabis users continue to buy their product through sources that make more sense economically.

Typically an ounce of recreational Marijuana in Colorado is selling for around $400 dollars or $15 dollars a gram. Nationally this is considered a reasonable price for the plant, but in Colorado this is considered more of a rip off since medicinally an ounce of Marijuana will run from around $150-$200 depending on the dispensary you visit and the quality of strain you select, meaning grams of medicinal pot will range anywhere from $5-$10 ($10 being extremely high quality product). The black market is much closer to mirroring the medicinal market with slightly more expensive prices, but in comparison to recreational weed prices the black market is a bargain. In Fort Collins Colorado where I live Marijuana prices on the black market prices run roughly around these numbers: Gram: $10, Eighth (3.5 grams): $30, Quarter (7 grams): $60, Half Ounce(14 grams): $100, Oz.(28 grams): $180-$200. So essentially recreational prices in CO are marked up roughly 100% or more from what Coloradans who smoked weed prior to 2014 were willing to pay before legalization.

The reason the prices for recreational pot are so high is that there aren’t nearly enough shops to keep up with the unbelievable demand for Marijuana here in Colorado. Each store is required to grow the majority of its own product (vertical integration similar to the beer industry) and as we have discovered the amount currently being produced is not nearly enough to satisfy the publics insatiable appetite for legal marijuana. These crazy prices are due to tourists from out of state (Texas, Ohio, California, Utah and across the country/world) who’ve come to experience legal cannabis for the first time and don’t care what they pay. Along with many older folks in CO who have never smoked marijuana or haven’t smoked in ages and are trying weed now that it’s becoming socially acceptable along with being able to purchase it from a safe legitimate business. 

Prior to January 1st the only options these people had was going through a criminal (drug dealer), or through the medicinal system (In CO your name goes on a list employers can view when you are a medical patient). Now that you can buy marijuana similar to how you buy alcohol many people are lighting up for the first time in years and paying a hefty price to do so. These customers simply don’t care how much they are paying for recreational marijuana, they are just thrilled to be able to walk into a shop buy weed and not be treated as if they are some sort of criminal.However, for those who have been smoking weed in Colorado for years these recreational prices are outrageous and most heavy smokers in Colorado have yet to buy weed from these overpriced shops. 

Why would anyone who buys pot regularly be willing to pay $400 for something they could buy down the street for $150? Another aspect of the price inflation involved in the current recreational price is the huge tax being placed on recreational marijuana. Roughly a 30% recreational tax vs a 7% tax on medicinal which is already a much better value currently. In the long run I don’t believe this tax will be an issue for customers, once grows are able to ramp up and expand their operations in order to meet this crazy demand the prices will become much more reasonable.

Companies like Growlife (PHOT) who sell lighting and grow equipment should have an easy time finding customers as there is currently no way for suppliers to keep up with the demand for recreational weed. Once grows are expanded and there is enough marijuana being produced in Colorado to meet demand, prices will fall and i believe they will fall drastically. 

Over the last five years black market and medicinal prices fell from over $400 dollars an ounce to around $150-$200 an ounce thanks to the amount of recreational product being produced and the huge demand for it. Marijuana isn’t extremely difficult to produce and the reason it’s so expensive is because distributing the product is dangerous and there are harsh penalties for those who are caught doing so. The medicinal market in CO took out most of the risk and as a result the price of weed dropped dramatically. I believe this is certainly what will happen with recreational pot and prices will become much more affordable over time as producers are able to expand grows, more players enter the market, and the risk is essentially gone from distributing cannabis. Business owners know that whoever sells the most product will be very successful and once there are more shops operating and more weed for sale these crazy recreational prices will come down to earth. There will be suppliers with massive grows who are able to drive the prices down to reasonable levels and create a new market equilibrium which should be cheaper than any current price level for marijuana from any source.

Long term recreational pot will bring the price down drastically and essentially eliminate the black market and reveal just how huge the market for Marijuana in Colorado actually is. But as long as there are lines out the door and shops are struggling to keep product on the shelves at outrageously expensive prices, many will stick with current black market and medicinal suppliers. Recently the Denver Post published an article “Governor: Colorado pot market exceeds tax hopes” in the article it said “The governor predicted sales and excise taxes next fiscal year would produce some $98 million, well above a $70 million annual estimate”. Clearly nobody understands the true size of the marijuana market and many will be shocked to see how much money Colorado brings in, along with how much money they save by not enforcing the prohibition of a plant that essentially helps with everything. Marijuana medicinally helps: Cancer & AIDS/HIV patients, killing cancer cells, nausea, appetite stimulation, chronic pain, glaucoma, arthritis, PTSD, depression, epilepsy, migraines, and it’s typically a much safer natural alternative to pharmaceutical solutions for these health problems. The more the public learns about weed the more support and demand there will be for the legalization of Cannabis both recreationally and undoubtably medicinally. The Cannabis/Hemp plant has a laundry list of uses and the way our lawmakers have treated the plant is tragic.

Our economy and government is looking for a new source of revenue and a way to fix our massive national debt which is nearing $18 TRILLION. If there is an industry that already has a fully developed market and is worth far more than we estimated why not take advantage and start collecting tax revenues from legal pot instead of letting this money end up in the hands of criminals and drug cartels? It’s estimated the government could save $13.7 Billion On Prohibition Enforcement Costs and tax revenue by legalizing marijuana, according to a paper endorsed by 300 economist’. Marijuana has hit the mainstream and with the recent Gallup poll showing that 58% of the public favored legal marijuana it’s hard to imagine we look back from here. In 1933 Colorado became the first state to repeal the prohibition of alcohol and the rest is history, will Marijuana share a similar fate to alcohol and soon be legalized nationally? The size of the marijuana market in Colorado & nationally are both unknown and estimates for the market have been very conservative so far. There are over a hundred million Americans who have tried marijuana and that number will only continue to grow as the stigma surrounding marijuana disappears. The whole world is watching Colorado and it appears this “experiment” will be a huge success and something that could greatly benefit a struggling economy and help heal a nation.

News from the last week

http://www.youtube.com/watch?v=7fiGo-Oor84 -4:45 video discussing Colorado Marijuana

sales crushing expectations and revealing how strong the demand for pot is

http://www.bostonglobe.com/news/nation/2014/03/02/marijuana-legalization-cusp-broad-acceptance/TUycJH26igBgdAH5K7bbjP/story.html - Marijuana legalization on cusp of mass acceptance In long journey, drug soars from illegal to popular

Posted to 420 Investor on Mar 03, 2014 — 6:03 AM
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