Don’t Blame Wildfires for Rising California Cannabis Prices

(Juanmonino/iStock)

October’s vicious Northern California wildfires, the deadliest and most damaging in US history, also dealt an unprecedented blow to California’s emerging legal cannabis industry—and at a crucial moment.

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In addition to at least 43 deaths and the destruction of more than 8,900 homes and buildings, the fires’ casualties included at least 47 legal marijuana farms, according to the most recent tally from the California Growers Association. Total damage to legal cannabis crops is now estimated at “$60 million or greater,” according to Hezekiah Allen, the association’s executive director.

As much as 4% of the state’s cannabis crop may be affected in some way, according to commonly accepted industry estimates.

That figure could rise as farms untouched by flames discover their crops are contaminated with toxic smoke, or as wholesalers find that their smoke-scented harvest—which has earned nicknames like “campfire pot” and “hickory kush”—is now worthless on an already saturated market. “Is there benzene in that smoke? We just don’t know yet,” Allen said.

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But as apocalyptic as the fires were for the farmers they touched, as far as statewide marijuana prices are concerned, they may as well not have existed.

The fires simply aren’t enough to disrupt a marketplace already drowning in biblical oversupply.

“I don’t expect this fire to affect cannabis prices too much,” said Mike Ray, CEO of Bloom Farms, a major cannabis oil producer. “Production is at an all-time high. That’s going to be much more to blame for price elasticity than the fire.”

While the recent fires won’t cause prices to spike, more expensive cannabis is still coming.

And while whatever impact the fires had on the statewide marijuana market has already been absorbed, farmers and analysts say, small and medium cannabis cultivators are still at serious risk of being driven out of business. The real knockout blows to cannabis businesses have yet to come.

Ray, too, is a victim of a California wildfire. His family home and his company’s farm both went up in flames during the 2015 Butte fire in Calaveras County, and he has yet to fully rebuild.

The recent fires will absolutely put some people out of business—but cold, hard market forces will end the dreams of many more.

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In 2016, the state’s marijuana farmers produced as much as 13.5 million pounds of cannabis, according to a study commissioned by the state Department of Food and Agriculture. That’s five times more than California cannabis users consumed. The surplus exited the state to be sold on the black market at a higher price—or worse, stayed put.

This year, industry observers are seeing more of the same—literally. Last year’s harvest is still coming into dispensaries for sale, and it’s now competing for shelf space with the 2017 crop—including the bounty from massive, investor-backed greenhouses.

“From what I saw before the fire, there was an awful lot of cannabis in the market,” said Andrew DeAngelo, the co-founder and director of operations at Oakland-based Harborside, the state’s largest dispensary. “Last year’s crop was still coming into our shop and being offered to us before the fire—and last year’s crop is still coming into our shop and being offered to us, post-fire.”

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Harborside sources about “between 10 and 20%” of its products from the wildfire-affected areas, DeAngelo said—but the dispensary is also currently cultivating marijuana on a 47-acre former ivy topiary nursery in Monterey County.

Despite the obvious oversupply, many cannabis businesses are building bigger and bigger farms. Last week, California officials finally released the state’s long-awaited regulations for the cannabis industry—which include no limit on how many acres a cannabis cultivator can plant.

Cities, meanwhile, are generally keeping the number of retail stores steady, meaning most of California’s marijuana harvest may never see a dispensary shelf.

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For most sun-grown marijuana farmers new or old, prices are at an all-time low.

How low? While retail prices have remained relatively stable (so far), suppliers are reporting wholesale offers of $500 to $700 per pound for outdoor-grown flower—if the crops are accepted at all.

For cannabis destined to be extracted into concentrates to fill vape cartridges or dab rigs, prices are even lower. $50 a pound isn’t unheard of.

Faced with such low profit margins—as well as the choice of either selling product at a loss or trying to ship it out of state—many small-to-medium marijuana entrepreneurs are calling it quits.

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These growers generally don’t have massive savings or any hope at investment from funders looking for pre-legalization’s massive margins, said Kevin Jodrey, a nursery owner and longtime cannabis cultivator based in Humboldt County.

“This was a make-or-break year,” he said.

But while wholesale prices continue to tumble and producers’ livelihoods evaporate, it’s not clear consumers will see much savings at all.

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The state’s marijuana market has yet to figure out how it will react to government regulations, which are poised to increase overhead for cannabis businesses and raise end prices for consumers. When state excise, cultivation, and state and local sales taxes are added tallied, the government’s toll on California marijuana will be as high as 45 percent in some parts of the state, according to a recent report by Fitch Ratings.

That doesn’t include the cost of subjecting products to purity tests, which are shaping up to be the toughest in the nation and could be so costly that, at current estimates and prices, testing a pound of cannabis could be more expensive than buying one.

According to an estimate from the state’s official Bureau of Cannabis Control, lab testing will cost $407 per pound.

So while the recent fires won’t cause prices to spike, more expensive cannabis is still coming.

“Retailers are paying less and less for cannabis than we did 10 years ago, but our costs to deliver that cannabis have gone up and up,” DeAngelo said. “It’s a lot more expensive to do this legally. With the taxes going up from 0% to 35% just on the supply chain itself, I don’t see how I can not raise prices.”