Why Legacy Cannabis Breeders Want to Limit New Cultivation Licenses

When places like Oregon, Colorado, Washington and the like legalized cannabis, they were considered pioneers. People from all over the world flocked to buy and smoke “legal weed”. Now, after a decade, however, the market is saturated and the amount of cannabis produced has far exceeded the demand for cannabis.

As a result, some legacy license holders are asking regulators to “cap” the market to keep prices from falling, making it difficult to keep businesses afloat.

Of course, not everyone agrees on this, but let’s take a closer look at this story and discuss what the optimal solutions might be.

Demands are mounting among marijuana growers to stop licensing new growers in more established recreational cannabis markets like Colorado, Michigan, and Oregon.

Marijuana growers in these states and others in the industry are appealing to their regulators and legislatures to help growers struggling financially due to the overproduction of bud and low prices in the wholesale market.
SOURCE: MJBIZDAILY

Essentially, over the past decade, these companies have jumped through a bunch of hoops to legally sell to customers. However, as more states legalized and more companies got licensed. They began to see an influx of production and at some point production exceeded consumption.

The result has been a steady decline in the wholesale price of cannabis. However, due to high operating costs, this negatively affects the bottom line of companies.

But the demand for a “stop” on new licenses does not go down well with everyone.

“We’re cultivating and we definitely want to see the free market do its job,” said John McLeod, co-founder and head of markets at Cloud Cannabis Co., a vertically integrated cannabis company based in Tory, Michigan.

“We believe that people who bring out the best product can be successful. But we don’t want to see anyone fail either.”
SOURCE: MJBIZDAILY

This is certainly a “free market” approach and what the other license holders activate is that the government controls the market. This first happened in Oregon in 2019, but this was not due to overproduction, but rather a backlog of licenses.

In November 2021, that “license freeze” was over, but now the coalition of producers is demanding a 2024 freeze on new licenses to resolve the production issue.

“This time it’s more about what the market can take?” said Pettinger. “We have significantly more producers today than we did back then.”

Oregon has a total of 2,855 marijuana licensees with 1,407 producers and 826 retailers.

The problem with this is that even if you pause licensing, there is an overproduction problem, largely due to cannabis’ federal illegality. The problem of overproduction is also present in places like California, which would be able to supply the rest of the states were it not prohibited by federal law.

The main reason for the wholesale price crash is because producers are outpacing demand. Within each population group there is a finite number of cannabis users. Due to the illegality of interstate trade, this means that when a state hits the “consumer threshold,” the weed it has goes into vaults.

Because there are few people to sell these producers to, they get stuck harvesting, which only makes them lose money. Also, if cannabis is stored for too long, degradation takes place and it loses its value.

The main reason prices are crashing is;

1. Too much weed

2. Too few outlets

Even if limiting the market could easily affect the production element, it does not solve the problem. What would certainly solve the problem is if those states could sell to other states and to companies that want access to that cannabis.

For example, if pharmaceutical companies could buy this cannabis in bulk, they would have additional revenue streams. But over-regulation is making it harder for these cannabis producers to offload their crops.

In fact, it is not only a problem of overproduction but also of overregulation that is causing these markets to collapse. License holders have to pay lavish taxes on their crops and royalties, which made sense when legalization began – but now, 10 years later, it needs to be renegotiated.

California, for example, is overriding its legal market. This in turn creates incentives for illegal producers to compete with the legal market, which then becomes more attractive to the consumer as it is far cheaper for virtually the same product.

The consumer prefers to buy the black market cannabis regardless of whether it is tested by regulators. Why? Because the value of their money has fallen steadily over the past two years.

Wondering how much more $100 could buy you two years ago than it can buy today? If you are honest you would see a drastic drop in purchasing power.

This means that when it comes to economic motives, the consumer is more likely to take the risk of spending more money on something they smoke.

So if you reduced the tax burden on businesses and opened up interstate trade, you would essentially solve the problem in a matter of months.

When you limit licenses, you limit innovation and try to trick the market. Historically, that doesn’t sit well with innovation. It makes sense that the legacy manufacturers would want this, they have invested a lot of money in the industry and have had a decent return on investment for a while.

But now that newer companies are entering the market and newer markets are becoming available, places like Colorado are becoming less attractive to tourists. For example, people in Texas would rather travel to New Mexico than Colorado due to the proximity.

The Colorado tourism industry has seen a decline in visits from out-of-state stoners, largely because they now have more options.

What does that mean for these places?

You must innovate and create a more attractive offer than the competition claims. The problem is that Colorado is a small state compared to many others, meaning they’ve “outgrown” slightly.

However, licensing restrictions will only harm entrepreneurs who want to enter the market and would encourage this “prohibition 2.0” climate – in which the industry tries to secure its position in the market.

In the US, it’s the idea of ​​free market competition that makes it so great. By trying to control the market, you only encourage the black market to compete – and after 55 years of prohibition, you can bet the black market will certainly do just that.

The best steps forward would be to pressure the federal government to remove interstate trade barriers, reduce excessive taxation, and create a two-tier cannabis program, as I discussed in this article.

If the government tries to regulate the market too much, they will only encourage organizations like drug cartels to start illegal cultivation operations and compete directly with the legal market.

When the going gets tough, innovation is the only way to move forward. If there’s a problem with oversupply, instead of trying to control supply – find new ways to unload it. If you can’t sell it to people, sell it to industries that want to infuse their products with cannabis, allow pharmaceutical companies to buy up as much as they want – innovate, don’t harden!

I personally find that those old companies that ask for “license caps” are the ones you shouldn’t buy from. That means they don’t really want to fight to be relevant, to be the best. They are okay with the mediocre way of doing business where they limit competition instead of being better than the rest.

Let the free market rule, that’s what cannabis stands for… and even if you try to ban it… it will continue to grow.

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