Big Business and MMJ: You’ve Gotta Pay to Play

The medical marijuana industry is flourishing, but not because of strong sunshine rays or the right amount of water. No, it’s been flourishing from the source that brings life to all industries alike – the money of big business. As with any industry that gains initial momentum, investors are always prepared with the funds to propel it forward and really get things rolling.

Who’s investing?What’s the impact?

Beyond the increase in marijuana related products and services hitting the market, big business is also getting into the production side of things. We are seeing the effects of this primarily in the price of medical marijuana. According to CannaSaver.com CEO Brian Shapiro, wholesale prices per pound have dropped from $2,500 down to just $1,000 over the past year.

“We’re already seeing in Colorado, the prices on pounds plummeting,” says Tom Adams, principal analyst at BDS Analytics. “And the other legal states, same thing. The margins are going to get squeezed in a big way in this business.”

It’s not just happening in Colorado either. Supposedly per gram prices have dropped in Washington from somewhere around $25 a gram down to just $6 a gram over the past 2 years. It’s no secret that the rise in competition has driven down average market prices for medical marijuana.

Why’s this happening?

At this point, there seems to be two clear reasons for the significant drop in prices. The first is based on fundamental economic theory of supply and demand. Specifically, with a rise in competition comes an increase in supply of medical marijuana. As these businesses flood the market with product, the price naturally drops. But this is just part of the explanation here.

The other contributing factor comes down to the strategic motives of big businesses. Specifically, these larger organizations can afford to lower prices to the point where smaller companies cannot afford to compete. Whether it’s done through flooding the market with product or simply selling at a lower price, both achieve a similar effect. And let’s just say, this isn’t the first time in history where we’ve seen the big dogs push out the small-time players.

How big business could take over the MMJ industry.

As these larger businesses leverage its economies of scale, they can afford to squeeze profit margins by dropping prices extremely low. The idea is to drive competing businesses out of the market so the remaining ones can increase market share and have greater influence in shaping the industry. Eventually, raising prices again to a more profitable level.

And this isn’t just the plant itself – it’s all the other aspects of the MMJ industry too. These companies are investing in the materials and tools necessarily for cultivating the plant. Take Johnson’s Miracle Gro as an example. The CEO has publicly been heard saying the company plans to invest somewhere in the ballpark of $500 billion into the industry in the near future.

Other factors that affect the outcome.

Asides from the competitive moves of big businesses, there are some states that are essentially handing out golden tickets to monopolies and oligopolies. Take Florida as an example. There is debate between two bills that propose how medical marijuana should be handled in the state. The primary difference between the two bills is this. The first one allows those who are most qualified in the cannabis production process to obtain licenses. On the other hand, the opposing bill essentially hands exclusive licenses over to the 7 current products of medical marijuana in the state. In other words, the state would be creating an oligopoly from its own doing. Needless to say, the outcome will have a dire impact on the MMJ industry in Florida.

The future for the original MMJ players.

Meet Michael Straumietis, aka Big Mike, the CEO of Advanced Nutrients, a marijuana fertilizer company. He thinks that the original players who got the industry going won’t necessarily have a place going forward. He says, “It’s almost like you invented something and you’re holding it in your hand and some big bully comes along and takes it out of your hand and says, ‘Thank you very much for all your hard work.’”

He adds, “The little store owner – the hydroponic store owner – is going to be put out of business by national chains,” he said. “It just is. Either that, or you get your game together and you start having the business practices and start doing it the same way as the big boys do.”

How does this affect consumers?

Initially, we may see lower prices as big businesses attempt to push the smaller players out of the market. However, it is very likely that a rise in prices will eventually follow. Either way, consumers should still fight for regulations surrounding legalization that suits their needs.

In fact, NORML’s Paul Armentano warns consumers that they should not just sit back and let big business shape the industry. He says, “One shouldn’t assume that those two entities will be advocating for the same policies. In some cases it might be very different policies that corporate interests are advocating for versus those of the individual.”

All in all, big business will have a profound impact on shaping the medical marijuana space – we’ll keep a close eye as it unfolds.

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