Forget that nonsense you’ve heard about cannabis being so much more expensive in legal states than the black market: Grams for just $6, and sometimes less, are increasingly common at state-licensed shops.
Low prices haven’t come to every shop, but they’re out there — and spreading. At least two stores I spoke with, Uncle Ike’s in Seattle and the Attis Trading Co. line of dispensaries in Oregon, reported grams for $5-6. Given what we know about the costs of growing, processing, packaging, distributing, stocking, advertising, selling, and paying taxes on legal cannabis, how is that even possible?
Many view the move as the old “half-price sushi” gimmick: Get you in the door with some cheap fish that the restaurant makes no money on, sell you three bottles of Kirin at a high margin, then laugh all the way to the bank. At Uncle Ike’s, where they proudly advertise “Cheap Pot!” at $6 a gram and $99 an ounce, store manager April Roth freely acknowledged the use of bargain-basement deals as a lure.
“There are always loss leaders in retail!” she said.
Attis owner Eli Bilton agreed. He said he absolutely used rock-bottom prices to build his customer base.
“We put anywhere from five to ten strains on our shelf at $5 to $6 a gram, just to gain the customer and create a larger market share for ourselves and to get people through the door,” he said. “It definitely helps.”
Don’t assume cheap cannabis is inherently bad fish. Black market loyalists might argue their cheap cannabis is of better quality than retail’s inexpensive stuff, but they’re beginning to lose that battle, as well.
Down the street from Uncle Ike’s, Ponder sells only Clean Green-certified cannabis, and it still has grams for as low as $7. Store manager Lauren Downes said Ponder is willing to pay a little more and make a little less because, essentially, they’re idealists.
“Cost of production is non-negotiable, and profit and viability are essential for a business to grow,” Downes said. “I won’t turn a vendor away based on their asking price. Quality is more important. Cannabis is the fruit of someone’s labor, and we value cannabis produced by the labor of love, not for the love of money.”
That said, cost is no joke for retailers — it’s one reason those $6 grams are still relatively rare. In addition to the obvious expenses of rent, labor, and utilities, there’s a whole host of hidden costs. Chris Francy, chief operating officer for California-based CalCann Holdings, said advertising costs, for one, are a major component of the out-the-door cost to consumers. “It’s way more than our payroll,” he said.
Derek Peterson, who owns Terra Tech, another dispensary company with stores in Nevada and California, said the monthly ad budget at his Oakland dispensary often runs tens of thousands of dollars.
If that weren’t enough, none of that spending is deductible under the federal tax code that applies to cannabis, 280E. The only write-off available to retailers is “cost of goods sold,” which basically means what they pay the grower. All other business expenses are off-limits thanks to federal prohibition.
“When you try to sell cheap, and you have 5,000 square feet of floor space and 20 employees, and you can’t deduct your rent,” said Steven North, a Washington accountant who specializes in cannabis, “you could end up owing more [in taxes] than you made.”
Pressure on growers to cut production costs is one thing helping to make the low prices possible. The average wholesale price in Washington in 2015 was $3.76 a gram, according to a report from analytics firm Signal Bay. But that’s expected to fall considerably, said Danielle Rosellison, owner of Bellingham, Wash.-based grower Trail Blazin’ Productions.
“We are actively trying to get under a dollar a gram by the end of 2017,” she said. Another grower told her, “If you’re not trying to get to get to that point, you’re going to get left in the dust.”
“We don’t have a clue how we’re going to do that, by the way,” Rosellison added. While it might be possible to grow lower-quality cannabis at that price, she said higher-tier flower is likely to cost more.
“Is premium product ever going to be less than $1 a gram to produce? Can you do pesticide-free? Can you do sustainably grown?”
With current wholesale prices, it’s generally the retailer taking the hit. Vito Perillo, a Washington-based cannabis consultant, estimated that even if retailers use a 300-percent markup from wholesale, they’re left with a smaller operating budget than restaurants, perhaps the most famously low-margin industry. (In Washington, a rule prevents retailers from selling cannabis products below acquisition cost.)
Bilton, owner of Attis, in Oregon, said he took home only about a 2-percent return on his $6 grams after tax and expenses. When I asked Roth of Uncle Ike’s whether her store was making anything off that “Cheap Pot!” she demurred, saying only that she couldn’t share the recipe for Ike’s “secret sauce.”
She did, however, say cheap cannabis isn’t just a ploy to get people through the doors. It’s also, she said, about making safe, legal cannabis accessible to people of all socioeconomic backgrounds.
“We have people come in every day and buy one $5 joint,” Roth said. “We have people who will spend over $400 on an ounce of truly special unicorn weed. My goal is for both of those people to find something that speaks to them.”
“If it’s lower prices that keep people going to unregulated, untested, and untaxed black and gray markets, then I want to do what I can to erase that as a factor,” she added.
“Not to sound pompous, but what we’re doing right now in Washington state is important, and it’s not about money.”
Bilton, in Oregon, concurred. “We’re trying to do good for the people that can’t afford it,” he said. “There’s a large portion of our patient base that are veterans or elderly people, so we try to provide something for everybody. It’s good business, but it also makes you feel good.”
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