The licensed producers (LPs) have been stockpiling cannabis.
With over 7,000 kilograms of cannabis in their inventory, once they are allowed to sell to a recreational market, even through the mail, prices for cannabis will drop significantly.
You can’t flood the market with legal, recreational cannabis and not expect prices to fall.
But could BC Bud producers and vendors survive an environment where cannabis is $1 per gram?
This wouldn’t be the result of free-and-fair markets.
Safeway, for example, can’t reduce the rate of a certain vegetable by 75-90 per cent. For one, they’d lose money. But, moreover, their competitors wouldn’t be able to offer that steep discount and would have to refrain from selling that particular vegetable.
During this window, Safeway could buy up all the suppliers and distributors in Canada. Since this vegetable is no longer profitable for others, this gives Safeway a free hand to do as they please.
Then, once the competition is gone, prices rise back up to their market-clearing rate.
There are laws on the books to prevent this, but rules don’t stop people from acting. This is evident in the cannabis industry.
The reason Safeway, or any other business, have never done something like this is because if you were sitting on a board of directors and this was your plan to bankrupt the competition, no one would take you seriously.
So what prospect is there of this happening with cannabis?
Let’s go back to the Safeway example and assume that the vegetable in question was illegal but now is being introduced into a legal, regulated environment.
In the meantime, Safeway can sell the vegetable in its pharmacy, but only to people with prescriptions. For whatever reason, instead of following supply and demand schedules, Safeway accumulates a large supply of the vegetable, more than what’s in demand.
In other words, they are stockpiling more than they are selling. I think you see where I’m going with this.
Once the government legalizes for everyone, Safeway can then send the product out to their shelves, and, with such a supply glut, can slash their prices.
Other producers and sellers of this vegetable, who haven’t been stockpiling, but, who have, in fact, been barred from even associating themselves with this “illegal” vegetable, can’t keep up.
The vegetable that may have sold for $3–7 a gram is now going for $1 until the supply glut is cleaned out and prices rise to better reflect supply and demand.
In the meantime, small-time producers can’t survive in a $1 a gram environment.
In addition to the regulatory burdens the government is placing on them (assuming they don’t outright ban them entirely), the small-time producers are at the mercy of large-scale producers who were legal before they were, and who stockpiled enough product to crash prices once the recreational market opened up.
Is this what will happen to cannabis? Will BC Bud die out regardless of how the federal government decides to regulate?
After all, that LP cannabis needs to go somewhere.
If LP cannabis is sold in a liquor store conglomerate for $1 a gram while dispensaries are raided and deemed “unsafe” by the political and media establishment — then what will happen to BC Bud farmers? Vendors? Extraction crews? Bakers?
How long can they survive in a market where the price of cannabis is artificially suppressed? Not forever, as I’m sure a low-price for cannabis will evoke busy-bodies to cry and wail about “addiction” and “the children.”
But what if the price of cannabis stays low long enough to clear out the excess LP supply and bankrupt the smaller producers?
Who will survive when cannabis is selling at $500 a pound?