As the cannabis market evolves from what used to be an illegal, clandestine situation years ago to now a regular economy thanks to legalization, it’s going through a lot of the same issues that happen to any commodity in the marketplace: supply and demand.
The Cannabis Business is Now Just Like Other Businesses
Dispensaries operate as the primary business supplier, depending on customers for their income and revenue as well as balancing operating costs and expenses associated with regulation. They have to balance all these expenses and still bring in enough income to be profitable for growth, reserves and to handle financial surprises that always happen for any business. So, all of that math goes into the cost per product per unit sold. And, of course, dispensaries have competition, which acts as a downward pressure on pricing if it is active locally.
Economics Affect Consumers Too
The economics of a low price recreational dispensary are possible because the local businesses work hard to keep pricing under control. That happens by networking extensively and obtaining stock at affordable pricing so that the markup can be contained as well yet still have a viable operation. Prices aren’t just arbitrarily set based on a whim; product pricing happens with a minimum recovery level just to break even, and then the margin left is what could actually be considered potential profit. And there’s more profit in running a cost concious shop than you might think, especially if your target market isn’t white collar, as is the case with our example Durango, CO above.
Success of Dispensaries Depends on Their Communities
When a dispensary has found a balance in pricing that allows it to operate with growth but not gouge its customers, then it becomes a win-win for all involved. However, where customers demand discounts for everything, dispensaries can’t operate enough to survive operationally. When dispensaries gouge in pricing, people eventually go elsewhere for better price support. Wallet-voting is ultimately very objective: both sides have to cooperate to benefit long-term. This is why there continues to be such large variation in unit pricing of cannabis, from one strain to another.
Durango residents and others are able to enjoy professional dispensaries because their community has reached a viable balance that works. This is how a business grows with its neighbors versus at their disadvantage.
Cannabis as a Colorado industry has a lot of room to grow still, and it can produce still more jobs and income for communities as legalization continues to settle in for the state. However, like any industry, it will also have market ups and downs too, depending on local economic movements. How those movements go depends on everyone working together towards reasonable pricing and demand.
