Nov 7, 2022 - News

Marijuana reached a pandemic peak, next comes uncertainty

Marijuana sales in Colorado
Data: Colorado Department of Revenue; Chart: Tory Lysik/Axios Visuals

As the new kid on the block, legal marijuana knew no bounds.

  • Annual sales in Colorado grew exponentially since launching in 2014, and peaking at $2.2 billion in 2021.

Yes, but: The party's over. The industry faces its first real crisis as sales and wholesale prices plummet, a double supply-and-demand crunch that's leading to significant retail closures and layoffs.

Why it matters: Colorado's legal cannabis industry has evolved into a major economic player with $13.4 billion in sales, as well about 900 retail businesses and 40,000 employees, government figures show.

  • Moreover, it contributed $2.3 billion in state tax revenue through September. Much of that went to education, as originally intended, but the dollars now support affordable housing, substance abuse and treatment, law enforcement and agriculture, too.

State of pot: Medical and recreational retail cannabis sales hit new highs amid the pandemic with consumers spending more time at home and receiving federal fiscal stimulus checks.

  • The combined sales broke records at $226.4 million in July 2020.

Now, the broader rebalancing of consumer spending and time, as well as rising prices on everyday goods are snuffing the highs.

  • Marijuana retail sales in Colorado were down 22% in June, compared to the prior year, and the wholesale price of cannabis flower fell to an all-time low, down 46% to $709 a pound. The record price came in January 2015 at $2,007.

What they're saying: What makes it most difficult is seeing supply increase but demand fall. "You're getting squished from both sides, both walls are coming in at the same time," Andrew Livingston, an economist at Vicente Sederberg, one of the nation's top cannabis firms, tells Axios Denver.

What to watch: Jon Spadafora, president of Veritas Fine Cannabis, wondered aloud whether the industry believed its own hype too much. Veritas closed a cultivation facility in June and laid off 33 people, a quarter of its employees.

  • "We went from an environment where growth was all we ever knew," he told us. Now, he's predicting "substantial downsizing across the industry in Colorado."

The other side: Joe Hodas at Wana Brands, a leading cannabis edibles company, tells us he's optimistic that sales will soon plateau and eventually rebound.

  • "To build a healthy industry, you have to cull the herd, you have to get rid of the sick players that quite can't keep up and that allows the stronger players to continue to grow," he said.
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