In an email transaction quoted from CNN Business, Cooper Ashley, Headset’s senior data analyst, told CNN that “this would indicate that inflation has not yet affected the prices consumers are paying for recreational cannabis in the United States.”
When evaluating data and pondering its real-world implications, it is critical to remember that correlation does not equal causation. In other words, without more information, we can not assume that the current trend of inflation not impacting consumer prices in the cannabis industry is evidence that the cannabis industry is inflation-proof.
With that said, the data has been interesting enough to raise eyebrows around the industry for consumers, although the fluctuation in cost for consumers isn’t having quite the same positive impact on cannabis businesses.
When costs decline, it is well-received by the consumer in a climate where savings are hard to come by. As for the business owner, a drop in price for the consumer doesn’t always mean a drop in the cost of production of said product. In fact, in the current case of the cannabis industry, it is quite the opposite.
Andrew Livingston, Vicente Sederberg LLP’s director of economics and research, a cannabis law firm located in Denver, Colorado, said “Inflation is obvious when all else is equal”. Concerning prices not rising for the public he goes on to say “it doesn’t mean that there’s no inflation, it means there are other factors at work that would overwhelm the inflationary signals.” In other words, “all else” is currently not equal due to the legal complexity of the cannabis industry, especially the major practical and legislative hurdles concerning interstate commerce.
For cannabis businesses, a portion of the factors at work that are overshadowing inflationary signals stem from supply chain and labor market disruptions that have been a byproduct of the pandemic as pointed out by Bethany Gomez, the managing director of Brightfield Group, a Chicago-based cannabis market-research firm.
Larger cannabis retailers are adjusting to this by increasing wages and concentrating on stocking the products that consumers enjoy the most. Theresa Ekman, the supply chain director of Native Roots, a cannabis retailer with 23 locations spanning two countries, comments on the adjustment to the pandemic.
“During the pandemic, we did cut back to make sure we were ordering the right product that our consumers are using.” She goes on to say “so we don’t have as much from a variety standpoint, but that’s been a benefit to the company as a whole.” The biggest adjustment for Native Roots came from their labor costs as they’ve increased their wages by an average of 14% in hopes of increasing employee retention and remaining competitive.
In the face of all of these changes, Native Roots has maintained a commitment to keep their pricing the same regardless of the impact that it has on profit margins. The goal is to keep customers happy. “There’s been so many other unfortunate, negative influences with regards to this pandemic that we really did not want to be one of those,” Ekman said. “We wanted to be able to continue to… maintain the same prices to keep our customers happy.”
For smaller cannabis businesses, the technique deployed by Native Roots may not be as easy to follow when cash reserves and purchasing power aren’t abundantly available, a challenge that many small businesses face regardless of industry. Kika Keith, the owner of Gorilla Rx, the first black woman-owned dispensary in Los Angeles, discusses the challenge from the perspective of a small business.
“Even as an equity business owner that made an effort to have my store in my community in South Central Los Angeles, where you’re looking at how inflation affects the disproportionately impacted communities and the disenfranchised, I can’t even say to my customers, ‘Inflation and the supply chain is causing me to have higher prices, so work with me.”
Keith goes on to point out the challenges that the black-owned and social equity brands that she carries in her store are also facing, ultimately settling on the conclusion that the economic impact the pandemic is having on the cannabis industry is negatively affecting families.
Consumers are currently enjoying a reduction in the price of cannabis while retailers and other cannabis brands are struggling to keep up. As the pandemic continues to impact the economy, it is impossible to predict where things are headed. With that said, it is too early to come to a conclusion on how the cannabis industry will continue to react to inflation, but finding a solution for small businesses in the cannabis space should be a priority for all.