Demand for premium flowers is driving marijuana wholesale costs in Colorado to a five-year excessive

Wholesale marijuana flower prices in Colorado are up to 2016 levels, driven by increased demand during the coronavirus pandemic and growing consumer interest in more expensive premium flower brands.

The Colorado Treasury Department reports that the average wholesale market price for a pound of marijuana flower on Jan. 1 was $ 1,721, a price that has not been seen since July 2016.

Since October, wholesale prices for flowers have increased by more than 30%.

The price hikes could help explain how sales of medical and recreational marijuana in the state reached $ 2 billion in 2020 – even before the December transactions were closed.

The profits are a welcome turnaround for marijuana growers who only faced wholesale flower prices in the range of $ 700 a pound two years ago.

On the other hand, more than doubling the wholesale price means marijuana manufacturers and distributors will have to pay higher product prices.

As the cannabis market matures into one of the oldest recreational programs in the country, so do consumers.

Several cannabis growing executives say more discerning customers want to pay more for premium flower brands in small quantities like Snaxland and Cookies.

“People are willing to pay for the higher quality,” said Zachary York, inventory manager at Denver-based vertically integrated cannabis company Lightshade.

When the pandemic started last year, the initial trend was for consumers to stock up on the cheapest product on the market, which is usually budget flowers.

As customers cleaned up the lower shelves, they worked their way up to higher quality marijuana.

York said when consumers saw the difference in the quality of the products they weren’t ready to return.

This, in turn, has led wholesalers to raise their prices, knowing that consumer preferences had changed.

Brand power

In addition, the rise in branded flowers has pushed up prices in the upper price segment. Certain brands can wholesale for up to $ 4,000 a pound, according to York.

“Brand names really say our product is of a different quality and you will pay more for it,” he added.

These branded flower companies use advanced marketing techniques like product drops to build hype and get attention.

Tim Cullen, CEO of Denver-based vertically integrated cannabis operator Colorado Harvest Co., said these companies are helping to drive demand for premium marijuana flowers.

The brands are easy to spot and have enthusiastic social media followers.

When these companies announce on social media that a certain type of flower will be available in a certain location for a limited time, “you feel like this is a high-end product and is harder to come by,” said Cullen.

The buzz these brands are getting is causing retailers to “hone their marketing game” in order to be competitive, he added.

The quality of the flower in these product drops deserves attention.

“The entire market is making small-volume craft products that have limited availability,” said Cullen.

Jon Spadafora, partner and director of marketing at Veritas Fine Cannabis, based in Denver, which grows flowers for the Cookies brand in Colorado, also said demand for premium flowers has increased.

“We have a really strong market for a while,” he said.

Spadafora attributes this buying behavior to a development in consumer taste.

“Consumers have become more mature in what they want,” he said. “It’s a reflection of a developing market.”

COVID-19 impact

While the pandemic continues, tourism to Colorado has declined. So much of the growing demand for marijuana products appears to be local.

“People get along with the idea that they’re not going on vacation,” said Cullen.

Consumers who spend their disposable income on cannabis rather than restaurants, cinemas or other entertainment are another explanation for the rise in wholesale prices.

Alex Levine, co-founder and chief development officer of Denver-based vertically integrated cannabis company Green Dragon, said the coronavirus pandemic had driven demand and prices higher.

He said his total sales were up more than 30% year over year.

“When you limit consumer options and people can’t go to concerts or movies, you have fewer things to buy and cannabis is still available. So it shapes consumer behavior, ”he added.

Brooks Lustig, founder of Denver-based vertically integrated marijuana business Seed & Smith, agreed that the pandemic is fueling demand.

On the wholesale side, the company saw order size increase by more than 30%.

Funny also attributed the surge in purchases to the decreasing stigma surrounding cannabis, particularly after Colorado declared medical and adult pharmacies “essential” last March and allowed them to stay open.

The average ticket size in retail stores increased somewhat during the pandemic, Lustig said. He sees both new and existing customers trying other types of products.

“You have a lot of people at home who don’t go out and do the things they would,” he said.

Funny also sees a lot of people buying their max flower limit, an ounce of recreational cannabis, or 2 ounces on the medicinal side.

The company had to cap some of its medicinal ounce sales in July and August because demand was so strong.

Effects on the market

Cullen said the upward trend in pricing saved the state’s businesses.

About 18 months ago, the pounds of wholesale indoor flowers dropped to about $ 700 a pound.

“We lost most of it then,” said Cullen.

Companies had to figure out how to enter their production costs. And as the quality of flowers improved, companies with higher prices followed.

Levine said the bigger unknown is what will happen when the pandemic subsides.

“The big question for every operator: is this a COVID bug?” he asked. “Has it jumped more than it should have been and will it sink?”

Bart Schaneman can be reached at [email protected]

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