July 2022 - The Cannabis Collapse

Written by: Megan Hoss, CPA

Despite inflation, cannabis prices are plummeting – putting Oregon’s once-thriving pot industry, in a less than ideal situation. The post-pandemic period is straining people’s budgets and inflation means customers have less discretionary money to spend on cannabis products. At the same time, cannabis business operators are paying steep markups on everything from fertilizer to solvent to plastic packaging and labor.

The reasoning behind the discount shopping might give you déjà vu: Oregon has an oversaturated market, with an oversupply of weed, and too little demand. According to Willamette Week, the same problem happened in 2018. Now fast forward to today, the oversupply and falling prices, plus the strength of the black-market competition, are crushing the Oregon cannabis market.

As the Portland Business Journal reported, the average price for high-quality flower in Oregon is currently the cheapest in the country at only $210 an ounce; down 19 percent from last year. According to the Price of Weed, this trend is not just burning through Oregon, but is appearing across all legal markets. Other Western states with legal cannabis markets were also at the top of the list for the cheapest cannabis: Colorado was third at $242, California was fourth at $249, Montana was fifth at $266, and Nevada was sixth at $271.

Oregon’s low prices are the result of a competitive market that reflects a long history of growing cannabis and initially low barriers to entry for licenses, a contrast with many other states. According to the Oregon Liquor and Cannabis Commission (OLCC), in June 2020, Oregon had 671 cannabis retailers statewide. In 2021, that number increased to 756. In 2022, Oregon now has 794 retailers, all of which are just trying to stay afloat. Oregon retailers have had to cut the prices of flower, concentrates, edibles, and tools just to try and keep shoppers and with the hopes of potentially attracting new customers. While dispensary profits are diminishing, some retailers are optimistic this change will help expand their customer base. More people can now purchase cannabis, potentially leading to an influx of shoppers across gender, age, and class lines.

However, the falling prices in Oregon have not been enough to stimulate a rise in demand just yet. In a highly competitive environment, retailers are passing along these lower prices, but consumers still aren’t showing up…definitely not in the way they were at the beginning of the pandemic when the three places you could go to were the grocery store, liquor store, and the dispensary. For perspective, in July 2020, Portland residents bought a whopping $21 million worth of flower, the most weed ever purchased in a single month! However, in June 2022, Portlanders purchased only $11.5 million worth of weed - the lowest amount since June 2019.

The Oregon cannabis market continues to evolve. Laws change, regulators shift perspectives, and consumer preferences can vary. As it evolves, the valuation of cannabis businesses and accounting work surrounding the litigation must be dynamic as well. Seek CPAs, who are also experts in business valuation and financial forensics, to help you navigate changing paradigms.

For assistance in Portland, Oregon, and throughout the Pacific Northwest, you can count on Cogence Group to be up to date on the cannabis market. Let us know if we can help you!