Cannabis Capitalism

Digital menu screens inside the Red Barn Growers cannabis company dutifully display a series of strains and prices, much like at most dispensaries around New Mexico. Up Town Funk and Grim Glue go for $10 per gram at the well-known shop a few miles from the Santa Fe Farmers Market, as do other varieties.

Then, there’s Motor Mouth, which runs $12 per gram.

The difference lies not just in THC content and flavor profiles, but in where the buds were grown. Red Barn’s grow facility in Gallup handles much of the lifting, but another licensed cultivator grows Motor Mouth; Red Barn buys it wholesale.

According to figures compiled by the New Mexico Cannabis Chamber of Commerce, the average wholesale cost of cannabis in New Mexico has dropped by nearly half since mid-summer. But that’s not likely to mean lower retail prices, according to producers who spoke with SFR. What it likely signals, they say, is a more competitive market that is less likely to lead to a long-feared cannabis shortage.

Several legacy producers—those companies that were in operation in the state’s medical program prior to adult-use legalization—tell SFR it’s mostly new cannabis retailers without an independent supply or even a license to grow that buy wholesale.

Red Barn seems to be an exception.

The company has been stockpiling wholesale cannabis to shore up supply, in anticipation of a run on product this year, says Executive Director Ellie Besançon, who oversees Red Barn Growers’ operations as well as Green Goods in Albuquerque for Vireo Health, a national cannabis company. But Red Barn hasn’t made a wholesale purchase in about five weeks.

“Compared to some of the other biggies, we’re kind of a smaller group,” Besançon tells SFR. “And so to keep up with the demands for [recreational-use cannabis], one of the things that I did was to start stockpiling wholesale, just to ensure that we weren’t going to run out and to ensure that we had that 25% cache for the medical patients.”

Red Barn and Green Goods were already eating the extra costs of buying wholesale, she says, in order to keep retail prices around $10 to $12 a gram—a pretty standard rate in New Mexico’s urban areas.

Ben Lewinger, executive director of the New Mexico Cannabis Chamber of Commerce, says his figures, which come from members and other businesses, show that the price of wholesale cannabis flower dropped from about $10 per gram to about $5.

Lewinger prefers the term “fluctuation” when referring to the decrease and says he agrees the change “does not necessarily mean the price will go down for consumers.” However, he adds, consumers will start to see more variety at the counter.

“Wholesale prices could go back up and go back down,” Lewinger says. “I think part of the challenge is new cultivators and new retailers don’t necessarily have all the connections they need to get exactly the product they want.”

Len Goodman, who runs Best Daze, tells SFR that the major decrease in wholesale prices actually shows “we’re not in a shortage.”

“There’s some amount of competitiveness going on” in New Mexico’s market, he adds. But Goodman warns that outdoor crops are a few weeks from harvest, which creates some uncertainty.

“What we don’t know is how extensive the fall crop is going to be,” Goodman says. “So, there’s no shortage right now, will there be a glut? Don’t know yet…For the most part, the legacy producers did not need to buy wholesale.”

Duke Rodriguez, president and CEO of the prominent cannabis company Ultra Health, says he doesn’t expect retail prices to go down, even with wholesale prices dropping. Rodriguez points out that the average wholesale price is just that and costs can fluctuate depending on the quantity in any given wholesale transaction. He says Ultra Health buys manicured buds to add variety and trim to make extracts and edibles, but not much volume compared to what the company grows itself.

“There is a wholesale market, but I wouldn’t say it’s a very active market,” Rodriguez tells SFR.

He says in other markets around the country where wholesale prices range from $2 to $4 per gram, retailers can bring in triple profits. But with higher per-gram wholesale prices in New Mexico, Rodriguez estimates retailers are only able to double the price.

“When we bring in what we call a guest strain, we don’t price it above our market rate of $8.99,” Rodriguez says. “So it’s unlikely we’re going to buy it at $5 a gram and then price it at $8.99.”

Lewinger says wholesale price changes are a necessary part of an industry still in its infancy.

“All of this feels normal to me,” Lewinger says. “This feels very normal for a new industry that is trying to get its footing in New Mexico and nationally.”

The new industry saw more than $40 million in cannabis sales in August, the highest since adult-use sales began in April.