Here Comes the Outdoor Harvest!

Here comes the outdoor harvest…oh my!

By Jim Marty, CPA, MS, ABV

 

In Colorado, retail ounces are selling for $63, wholesale pounds are going for $400 and extracted products are advertised for $9.99 a gram. This is before the outdoor harvest hits the market here in a few weeks. For many cultivators, extractors, and dispensaries, these prices are below costs ̶  if they even know their true costs.

How can cannabis businesses survive what seems to be a long-term trend in falling prices? For one thing, this trend is isolated to states that have unlimited cultivation licenses like Colorado, Washington, and Oregon. Although the city and county of Denver have a moratorium, the state of Colorado continues to issue cultivation licenses.

On a recent drive down the Green Mile, South Broadway in Denver, there are intersections with dispensaries on three corners. Would three liquor stores in such close proximity be able to survive?

 

Over-production also leads to black market smuggling, creating a public safety issue. Perhaps Colorado and other states with excess production should consider a moratorium on new licenses.

While that is one solution, cultivators should consider doing what traditionalfarmers do when prices are below their cost. They let their fields go fallow. An integrated cannabis business, one that has cultivation and extraction operations that supply their retail side, has the option to stop growing until supply is absorbed and prices rise.  If they know their costs of production, they can purchase products for less than that.

 

In recent weeks, Bridge West has recommended that some of our clients stop growing until they get a handle on their cost of production.  An old accounting joke is, “if you don’t know what your costs are, you will pretty soon.”

Bridge West supports an Enterprise Resource Planning (ERP) cost accounting program by ERP Cannabis. In this environment of falling prices, only the low cost providers will survive.  Cost accounting is critical and there are some good ERP programs that can provide critical information for cultivation and manufactured products.

 

Meanwhile, hang on for a bumpy ride!

 

Well I left Rome and landed in Brussels on a plane ride so bumpy that I almost cried. Bob Dylan 1971, When I paint my masterpiece