"Buzz Kill for Pot Farmers: Lower Prices"

The title of this post is the headline of this Wall Street Journal article reporting on the modern economic realities of the marijuana marketplace moving from black to gray. Here are excerpts:

From Washington to Colorado, wholesale cannabis prices have tumbled as dozens of states legalized the drug for recreational and medicinal uses, seeding a boom in marijuana production. The market is still tiny compared with the U.S. tobacco industry’s $119 billion in annual retail sales, but the nascent cannabis business has grown to more than $6 billion a year at retail, according to data from Euromonitor International Ltd. and Cowen & Co..

For marijuana smokers, the price drop is sweet news. Recreational users and those prescribed cannabis for health reasons have seen prices decline as wholesale prices have fallen, though some retailers have pocketed part of the difference, according to New Leaf Data Services LLC, which researches the U.S. cannabis market....

But for growers—ranging from high-tech warehouse operations to back-country pot farmers gone legit—the price drop has been painful. Since peaking in September 2015 at about $2,133 a pound, average U.S. wholesale cannabis prices fell to $1,614 in July, according to New Leaf. That is the sort of market decline that hit Midwestern corn and soybean growers in recent years after a string of record-breaking crops. “There is an increasing recognition, on the part of the industry and those that grow and dispense, that this market is a commodity,” said Jonathan Rubin, New Leaf’s chief executive.

In response, some producers are taking a page from the food industry, where farmers and food companies increasingly appeal to health- and environment-conscious consumers. Growth in organic food products for years has outpaced conventional grocery sales, and products made without genetically modified crops, gluten and artificial flavorings can command premium pricing and shelf space....

Because cannabis remains illegal under federal law, growers can’t get their crops certified as organic, a label that can only be bestowed by the U.S. Department of Agriculture. Cannabis farmers instead have turned to alternative labels such as SunGrown Certified, which requires that growers use sunlight and water-conservation practices. They hope such labels will entice smokers and secure shelf space in the 29 states where marijuana is legal in some form....

That push to differentiate is splitting pot farmers into rival camps. Indoor-grown cannabis, where climate controls and high-powered lights allow several crops per year, typically is of a more consistent quality, industry officials say. Its dense, often bright-green buds catch consumers’ eyes, often fetch a higher price and can be costlier to produce.

Proponents of marijuana grown outdoors and in greenhouses say indoor facilities rely on synthetic fertilizers and heavily consume electricity. They point to a 2012 paper by University of California Senior Scientist Evan Mills, which estimated that indoor cannabis production accounted for 1% of national electricity use, though some growers have been adopting LED lights, which consume less electricity.

Jeremy Moberg, owner of Riverside, Wash.-based CannaSol Farms and head of the Washington Sungrowers Industry Association, says marijuana smokers will come to care about the environmental cost of their high. “The socially conscious, premium customer is going to want us because we’re sustainable,” he said. “It only takes me 30 seconds to convert somebody wearing Patagonia and driving a Prius that they should never smoke indoor weed again.”

At Hashtag Cannabis in Seattle, Ms. Pillert said customers occasionally ask for pesticide-free or sun-grown varieties. Smokers’ main fixation, she said, is the potency rating for the key active ingredient, tetrahydrocannabinol, or THC: “They want to make sure they are getting the biggest bang for their buck.”

Many in the emergent industry expect marijuana to eventually resemble the beer business, where pricier craft brews have built followings in the shadow of cheaper mass-market beers like Budweiser and Busch. While high-quality strains and specialty brands may secure premium prices, more low-quality marijuana will be processed into oil used in vaporizer cartridges or adult-oriented baked goods like brownies and cookies, growers and retailers said.