It’s been a little over a year since Colorado began allowing stores to sell marijuana for recreational use and the market continues to grow rapidly. But there are clouds (ahem) on the horizon.
Nicholas Colas and his team at Convergex, a global brokerage company based in New York, surveyed a number of marijuana stores in Colorado last week to get a better picture of the state of the nascent market.
What they found was that prices are declining faster than some had expected, while the number of people visiting the stores has increased.
Here’s more from the note:
Since last June, the average price of an 1/8th ounce of recreational cannabis has dropped from $50-$70 to $30-$45 currently; an ounce now sells for between $250 and $300 on average compared to $300-$400 last year. More competition and expansion of grow facilities contributed to this price decline, but it is also a natural result for any maturing industry as dispensaries try to find the market’s equilibrium price.
Even with the declining prices, sales are still exceeding those of last year for recreational marijuana.
According to the note, sales increased by 98 percent year-over-year in April. Taking that into account, Colas expects stores to gross up to $480 million this year, which would be a 50 percent increase over 2014.
One thing his team will be keeping an eye on is the average size of each transaction, as it appears to be decreasing – perhaps as the novelty value of legally purchasing pot wears off – as well as a key upcoming date:
Our contacts still report between 100 to 300 customers entering their stores each day, but they only spend about $50 per visit compared to $100 last June. About half of these customers are tourists in most stores we interviewed. … The 10% sales tax on recreational cannabis will be repealed only on that day (September 16) due to a provision included in a bill Colorado Governor John Hickenlooper signed into law earlier this month. The bill also permanently cuts the 10% sales tax on recreational marijuana to 8% in 2017 in an effort to squeeze out the black market.
Meanwhile, the popularity of legal weed has sparked a fast-growing industry that Colas compares to Silicon Valley. The note talks about a camp called “CannaCamp Mountain Resort,” where guests can “hike, zip line, and roast marshmallows, all the while smoking cannabis” (though they have to bring their own. Due to state laws, the camp can’t sell to campers directly). The owners of CannaCamp also run two “Bud and Breakfasts.”
By Julie Verhage, Bloomberg News