The Effects of Inflation on Cannabis

It's probably an understatement to say that Americans have been feeling the pinch of inflation lately. And that's not an unfounded feeling either.

According to data from the U.S. Labor Department, inflation has skyrocketed by 9.1 percent over the past year or so, making the steepest increase over a 12-month period since November 1981. As a result of that record-high inflation, Americans have seen the prices of average, everyday essentials like meat at their local grocery stores, consumer electronics, and likely most notably for pretty much everyone, gasoline shoots up over that same time period. Just gasoline alone hit a record high of $5 per gallon this summer, marking the steepest price Americans have ever seen at the pump.

As a result, many Americans have had to tighten their belts and make some tough choices regarding where they spend their hard-earned money. As a result, more than half of Americans have cited this unexpected cost surge for having negative effects on their current lifestyle and long-term financial goals.

No matter how you slice it, there's pretty much no denying that the average American is feeling the hurt from this record inflation in many different areas of their life. One area that remains untouched for many American consumers, however, has been the legal cannabis industry!

So far, the multi-billion legal cannabis industry has seemingly dodged the sweeping effects of inflation, with prices either staying pretty much entirely the same or even dropping in some places! But how and why exactly is that possible? And is that claim actually true in the first place? Well, thankfully, we here at Where's Weed are here to answer and unpack the how and why it might actually be that way!

So with that in mind, this article will break down and help you digest some of the reasons behind the current prices for legal cannabis products all over the country. If the pieces are the same, how is the legal cannabis industry avoiding the inflation that has impacted so many other industries? And if the legal cannabis industry is feeling the crunch of inflation and supply chain issues, why aren't customers feeling that impact at the checkout counter like they are at the gas station, grocery store, or taking care of their utilities?

The Current State of Cannabis Prices

Before we dig too deeply into whether or not prices have been impacted by inflation, we first think it's valuable to set the baseline for what exactly prices are in the first place. After all, it's tough to tell definitively if prices are going up or staying the same without knowing what the average portion of cannabis from dispensaries around the country costs in the first place, right?

So with that in mind, how much does cannabis cost Americans on average? First off, it's no secret that Americans love their legal weed. On average, every U.S.-based cannabis consumer spends somewhere in the range of $500 to $2.5k annually. When brought to mass scale, that's about $1.45 billion weekly. In short, Americans spend a lot of their money on cannabis products. But how much do those individual cannabis products cost precisely? Well, that's a little bit more complicated than it seems.

The price of your cannabis products depends on what products you're buying and where you're buying them in the first place! If you're in a state where cannabis is recreationally legal and there's a well-developed, mature legal market like in California, Colorado, or Oregon, you're looking at pieces somewhere in the range of $100-200 for your average ounce of cannabis. However, in states with only medical programs or newly established recreational status, those prices will be a bit higher on average. Cannabis consumers in Michigan or Illinois can expect to pay closer to $250-350 for that same ounce. That breaks down to between 10-20 bucks per gram on average.

Generally, however, it's hard to pinpoint an exact price tag regarding how much the average cannabis product costs since there's such a massive variety of options.

After all, there are standard cannabis flower, pre-rolled joints, topicals, oral capsules, and cannabis concentrates, to name a few! A better way to think about it is to break things down to the average cost per milligram of THC. That way, you can accurately compare the prices of all different types of products. Breaking it down will be the best way to ensure you're getting accurate pricing and the most bang for your buck.

So Are Cannabis Prices Dropping?

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To put it simply, yes. According to data from analytics firm Headset, the costs for cannabis flower, edibles, and vape products have all fallen by somewhere in the range of 16.7, 11.8, and 12.4 percent, respectively. In Oregon, for example, prices hit a record low this summer while costs at the pump hit record highs. That means that unlike the average cost per gram, sitting somewhere between $10-20 per gram is now costing consumers closer to $5 per gram at dispensary checkout counters.

But how is that possible? Why is it that while the costs for other products are souring, cannabis, which has historically always been in high demand and very sought-after, is dropping? The answers lie in the other economic conditions, demand for cannabis, and various other social factors.

Industry Riding High

A key aspect factor to consider when it comes to the declining price of cannabis is the fact that the overall legal cannabis industry is coming off a record-breaking few years.

Plain and simply put, people bought a whole lot of legal cannabis during the COVID-19 lockdowns. In many states, dispensaries were deemed to be essential, while other businesses were forced to close due to state and federal mandates, making them one of the few outlets for people to splash the cash on. It also just so happens that cannabis tends to help folks deal with anxiety during an incredibly anxiety-inducing time in history.

That combination led to record-breaking sales figures and profits for the legal cannabis industry, giving them the wiggle-room in their budgets to not try to offset the rising costs of their operation onto their consumers. It's not that the cannabis industry hasn't felt the sting of supply chain disruptions and labor issues, it's just that they built up enough of a margin from record sales figures to live with having their margins eaten into a bit.

After all, spiking their prices and making people choose between heading to the dispensary and filling up their tank to make it work isn't smart for the legal cannabis industry. They know they're a luxury item, so any significant price spikes mean they'll be one of the first things consumers put aside if worst comes to worst.

This trend stands in stark contrast to gas companies, for example, who have openly admitted to price gouging consumers despite putting up record profits to make up for lost earnings during COVID lockdowns.

Supply and Demand Issues

Another factor to consider as to how and why legal cannabis industry prices haven't exploded the same way other products have has to do with one of the most basic staples of running pretty much any business; the law of supply and demand.

Simply put, most states have a massive surplus of providers when it comes to cannabis supply. Most legal cannabis states have allowed a wide variety of cannabis production businesses to get their own licenses and start providing top-quality bud. Sometimes, however, supply outpaces that state's demand.

Oregon is a great example here. The state has a well-reported cannabis surplus, reportedly producing nearly double the amount of cannabis their demand dictates. They have so much surplus cannabis piled up that they've even passed a bill to allow out-of-state exports to other West Coast legal cannabis hubs like Nevada and California.

With legal cannabis already a multi-billion dollar business with more and more investors pouring resources in by the day, we have no doubt the number of suppliers will continue to outpace demand. This is a great thing for consumers, which will help to keep those prices low!