Is Cannabis Inflation-Proof?
Is cannabis inflation-proof? As everything seems to increase in price, cannabis remains relatively cheap. Cannabis prices dropped between 2021 and 2022. There are a few reasons for this. Legal cultivators must compete with legacy farmers who don’t have the same overhead. So the legal growers dip into their margins to stay afloat. Same with retailers. They absorb inflation to keep their doors open and customers happy.
So no, cannabis is not inflation-proof. Inflation isn’t just “rising prices” but the expansion of the money supply courtesy of the central bank. How this expansion affects each industry will be different, but it will impact the entire economy. And we’re already seeing it with cannabis.
Is Cannabis Cultivation Inflation-Proof?
“We’ve definitely seen a significant surge in pricing and shipping for any of our carrier oils that is sourced internationally,” said Nico St Tomas, Chief Marketing Officer of West Blvd Cannabis. “Because gas pricing has increased globally, we have seen shipping costs increase as well, which has driven up our raw ingredients costs such as Olive oil, Coconut Oil, and Truffle Oil.”
Likewise, other cannabis cultivators, processors, and retailers have expressed concerns. The inflationary pressures on raw ingredients and fuel costs have driven up the costs of doing business.
Is Cannabis Retail Inflation-Proof?
Most Canadian provinces have a central government-owned distribution branch for cannabis. For example, in British Columbia, suppliers set the price at which they sell cannabis products to the BC Liquor Distribution Branch (LDB). The LDB then applies a mark-up to establish a wholesale price that retailers pay before selling the products to consumers.
Suppliers can change the price they charge the LDB once per month. And then LDB passes that along in their mark-up formula calculation. “The majority of cannabis price changes submitted by suppliers are price decreases, but of late, the LDB has started to see a small number of limited price increases, which may be attributable to inflation,” a spokesperson for the LDB told CLN.
The Cannabis Consumer Wallet
“There are other goods and services that compete for a more restricted consumer wallet now that we’re having 7, 8, 9% inflation within US and Canada,” says Nawan Butt, Portfolio Manager at Purpose Investments. “Which means it’s more expensive for consumers, they have to use tighter budgets, and cannabis is competing with other discretionary items. There’s a little bit of demand-pull away that we can see happening.”
In other words, inflation is causing food and fuel prices to rise. Someone making less than $35,000-a-year might cut back drastically on their cannabis buying habits.
So while inflation, as defined by “rising prices,” doesn’t seem to have impacted the cannabis industry directly, you cannot argue that the cannabis industry is inflation-proof. From a more restricted consumer wallet to supply chain costs to slight but gradual price increases, inflation affects the entire economy, and cannabis is not immune to it.
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