It is no secret that cannabis products are expensive. Whether you visit a marijuana dispensary or a medical cannabis pharmacy, you are going to pay a hefty price for your preferred products. Still, you might wonder why prices are so high. It boils down to the simple fact that everybody has to make their money. It is the same in the cannabis industry as in any other.
High prices are easier to understand when you also understand the many players involved. Here is what you are dealing with:
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- Cannabis growers
- Cannabis processors
- Product testers
- Wholesale operators
- Retail operators
- Local and state governments.
Every player in the supply chain must cover its own costs and make a profit simultaneously. So they all buy at one price, then turn around and sell at a higher price. The only exception here are local and state governments. They simply add to the price of retail cannabis by charging licensing fees and assessing taxes.
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Consider the Processor
Cannabis processing is arguably the most expensive enterprise in the entire supply chain. Processors have to invest in expensive equipment. They need large buildings to house that equipment and all their processes. Finally, they have to hire skilled team members to make in all happen.
Running a processing operation is not cheap. Just to get started, a new company must invest tens of thousands of dollars in extraction equipment. CedarStoneIndustry, a Houston company sells the equipment, says larger operations can spend hundreds of thousands of dollars just to get up and running.
Processors also have to pay for overhead. What is overhead? It is everything involved in the processor’s business that does not directly relate to processing cannabis biomass. Overhead includes things like building rental, utilities, office supplies, etc. It all adds up to a lot of expenses that have to be covered by the price of the products they sell.
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Taxes and Government Fees
The good news about government costs is that fees tend to be either one-time deals or assessed only on an annual basis. The bad news is that taxes are assessed on every purchase. In some states, cannabis taxes are so high that local and state authorities are actually inviting the black market to continue.
California’s black market is an excellent example. According to multiple news reports, the black market in the Golden State still accounts for a majority of the cannabis sold on the street. Legal dispensaries cannot compete because taxes make their products more expensive. As for medical users, they are willing to settle for less potent products because black market prices are so cheap.
Remember that black market operators do not pay taxes or licensing fees. They can make a very good profit and still sell at a lower price compared to licensed pharmacies and dispensaries.
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Consumers Ultimately Pay
In any industry, the consumer represents the end of the line. The consumer is the last person to purchase the finished product. That means they also pay to cover the expenses and profit of every entity in the supply chain. Ultimately, the customer pays the entire bill.
For the record, this is not unique to the cannabis industry. The consumer paying the whole bill is universal. It applies to every form of commerce under the sun. Buy a cup of coffee down at the local coffee shop and you are covering all the costs incurred by coffee growers, processors, roasters, wholesalers, and retailers. It is the law of the jungle, so to speak. Everybody has to make money. That is how it works.
