Cannabis Price Increase Curbs Demand and Restabilized Supply

There are two kinds of cannabis dispensary business models out there. Dispensaries either attracts its customers by aggressively playing the lowest price game or attract customers by offering unique products and services.

Three weeks ago weed supply was running low and there was a valid risk of running out altogether. The lower quantities available to patients were not because of production rates but rather because there are individuals who purchase their daily legal limit of weed everyday.

Colorado allows patients to purchase up to 2 ozs of weed from a single dispensary each day. If you travel around town buying 2 oz of weed from each dispensary you drive by you can easily purchase pounds of weed a day. You only have to visit eight dispensaries a day to get a pound of weed. There are plenty of dispensaries in Denver, some are across the street from one another, so getting a pound is easy.

Most patients that buy large quantities are mostly interested in price and not focused on quality. They would probably drive to the south pole if weed was cheap enough. If you are the lowest priced dispensary you will end up attracting a fairly large amount of patients that are only interested in purchasing cheap weed and a lot of it. There is only one problem. Weed is a limited resource and not easily produced.

The worst thing you can do as a dispensary is run out of weed. This seems to be the kiss of death for a dispensary’s reputation and repeat business. Attracting the volume buyers is great for cash flow until inventory levels are depleted. No matter how much inventory you supply they will eventually suck every gram of weed out of a dispensary and move on to the next.

The only solution to slow down the flow of weed is to raise prices. Basic supply and demand dictates that if supply is low and demand is high than prices will rise to create equilibrium. I was impressed when our dispensary raised prices by 15% in order to slow the demand for weed. It takes a strong business leader to raise prices and stand by that decision. They could have just kept playing the cheapest price in town game but they wanted all patients to have access.

It was amazing to see how quickly the supply of weed returned back to normal after prices were raised across the board. The supply re-stabilized in a matter of days and regular patients had access to quantity and quality again. I remember selling lumber during the housing boom and seeing the same type of volume spikes but nothing as volatile as weed. Its exciting to be part of an emerging industry and I can’t wait to see what happens next.