Despite having written a book about the marijuana business, motherlodetv.net has not covered the burgeoning pot stock world. We may in the New Year. However, The Economist has an excellent, short, article about why American marijuana firms are looking to Canadian capital markets for their financing.
Tucked away in that article is a fact which should make marijuana bulls and the tax hungry governments which are legalizing pot for the revenue, run their numbers again:
” the wholesale price of a pound of marijuana in Colorado has dropped from a peak of $2,000 in January 2015 to $1,300.”
When pot is first legalized there is usually a shortage. The fact is that it takes a while to ramp up production. But once production is in place the law of supply and demand takes over. Now, if you do the division, $1300 a pound is $2.64 a gram. With a 100% markup that comes out to $5.00 a gram at retail. Virtually all the Canadian potcos, as well as the provincial and federal governments who love them, take a base retail price of $10.00 a gram (and start adding taxes to that.)
When supply catches up to demand, and that will not take long given the number of retired candy factories being converted to grow ops, there will be significant downward pressure on wholesale and, eventually, retail price.
At a guess, the easy billions have already been made in the stock market, the actual recreational sale of marijuana in Canada and the US will turn out to be a low margin, high risk, retail business.