Why are cannabis prices falling? – Cannabis News, Lifestyle

Why Are Cannabis Prices Falling When Inflation Hits Record Highs? The simple answer is: there is more supply than demand. Producers have excess inventory and in order to sell it they have to lower prices. According to Statistics Canada, dried cannabis flower prices have fallen between 8.3 and 10.2 percent over the past year. Flower prices have fallen nearly 25 percent since legalization began in late 2018. And this influences factors like product size and THC content. Other items like vape pens, edibles, and beverages have also gotten cheaper.

But why? Why are cannabis prices falling in this industry but not elsewhere? Is it just supply and demand? The Canadian cannabis industry is still competitive, despite the odds. Instead of consolidating their market share, large license manufacturers have had to compete with smaller premium manufacturers. In places like British Columbia, the legacy market is going nowhere. If anything, the gray market has grown only on First Nations reservations, where the government has been reluctant to act (and that’s putting it mildly).

But what about other parts of Canada? How come cannabis prices can fall when the cost of everything else is rising? One method of investigation is to look at the numbers. Any big licensed manufacturer, like Canopy or Aurora, bleeds money. They sell cannabis at a loss. They expected the Canadian legal cannabis market to be bigger than it is. As retail sales continue to rise, manufacturers are unable to recoup their losses.

What the stats say

According to the Ontario Cannabis Store’s quarterly report, 61 percent of dried flower sales were between $3 and $6.50. The OCS believes they’ve finally overtaken Ontario’s legacy market thanks to cheaper flowers.

But cheap, mass-produced flowers aren’t everything. Canada’s largest licensed manufacturers (Tilray, Canopy, Aurora and Hexo) have seen their market share fall from 54 percent of retail sales to 28 percent. While consumers like to see cannabis prices fall, many are interested in premium flower at a higher price point.

Consumers would do well to take advantage of falling cannabis prices. If you can buy 28 grams for $3 a gram, it might be worth stocking up on for the future. Canada’s cannabis production is declining in line with consumer demand. Health Canada reports that indoor acreage has decreased by 22% compared to 2020. And producers are closing facilities. Canopy recently laid off workers (again) while Hexo closed its Belleville, Ontario plant. Dismissal of 230 employees in the process.

Investors flocked to Canada’s cannabis industry expecting significant returns. The sobering truth is that Canada is a big country with a small population. Our cannabis market is simply too small to support the grand delusions of many of these investors. And that’s why producers are clearing out their inventories to stay afloat.

Natural deflation has nothing to do with falling cannabis prices

In a healthy economy, all prices should trend downward

Ultimately, this small episode in the Canadian cannabis industry highlights a major economic lesson that is rarely portrayed in media or schools. That means falling prices are good for consumers. It debunks the notion that consumers will wait until prices fall even further. Personally, I don’t know anyone who sees a $3-a-gram deal on cannabis and thinks, “I’ll wait until it’s cheaper.”

Falling prices are supposed to be bad for businesses, but that’s technically not the case. When Cannabis Prices Drop, How Can Producers Turn a Profit? Of course, the profit margins result from both the selling price and the production costs. If production costs also fall, profit margins either remain unaffected or improve.

Falling cannabis prices may be a temporary result of an earlier miscalculation. But ultimately, falling prices are what a healthy economy offers. That, after all, is the meaning of capitalism. Goods and services are mass-produced so that even the poorest can afford what was once a luxury for the rich.

This process is still happening in electronics, for example, but inflation is eroding this process. Far from being a natural aspect of the market economy, inflation results directly from the central bank’s “open market operations” and the fractional reserve banking policies of chartered banks.

If Canadians want falling cannabis prices to persist, that is, if they want the purchasing power of their money to stay the same or improve, they should start using dollar alternatives like bitcoin or gold.

footnote(s)

https://www150.statcan.gc.ca/n1/pub/13-610-x/cannabis-eng.htm
https://ocs.ca/pages/insights-publication
https://cdn.shopify.com/s/files/1/2636/1928/files/OCS-InsightsReport_Q3-2021.pdf?v=1649948125