Pot Growers Trying To Cut Costs In The Face Of Dropping Legal Marijuana Prices

Image courtesy of Brett Levin Photography

The good news for indoor pot growers in states where marijuana is legal is that now they don’t have to hide their crops in secret growing sheds or their grandma’s basement. The bad news is that there’s a lot of competition, causing wholesale marijuana prices to sink. To keep up in such a crowded market, growers are now turning to new technology and growing methods designed keep efficiency up and costs down.

With the influx of growers in the legal market investing millions in fancy pot factories that employ the newest agricultural technology, wholesale prices for marijuana have dropped, which means growers need cut production costs if they’re going to keep up and still make a tidy profit on their crops.

Bloomberg reports that in Colorado, for example, the average price wholesalers sought fell 48% to around $1,300 per pound since legal sales to adults started in Jan. 2014. That’s according to Cannabase, the operator of Colorado’s largest market.

“Anybody that is investing in this sector or starting a business in this sector needs to be doing so with the understanding that the price of cannabis is going to drop precipitously,” Troy Dayton, chief executive officer of Arcview Group, a marijuana investor consortium, told Bloomberg. “The agricultural technology space is already booming, and now they get to lay their hands on the cannabis industry.”

A high efficiency indoor operation can trim costs for some indoor growers to less than $300 a pound instead of more than, $1,000, John Chandler, a vice president at Urban-Gro, a Colorado company that sells machinery like automated feeding and watering systems, told Bloomberg.

“If you want to compete on a price game, you have to use versions of our technology to do it,” he explained. “Everybody is putting in irrigation systems, so that’s good for us.”

Efficiency comes at a price, however: one Washington State grower has raised $25 million to expand his warehouse operation, one that used to face police raids in the past. The new space will increase production by 16 times, while boosting his employee county just four-fold, he explained to Bloomberg.

“If you want to provide cannabis to your people, you’ve got to adapt or die,” he said. “We are basically just going way bigger and then adding efficiencies like the machines and computer software.”

There’s also good news for consumers in all this, as retail prices have also dropped, although not as quickly as wholesale prices: pot shops in Colorado have collected an average $6.61 per gram in November, which a a 25% drop from the first quarter of 2014, according to research firm BDS Analytics.