Steve DeAngelo is the man of the moment. The author of the inspiring book “The Cannabis Manifesto,” Mr. D’Angelo is also Executive Director of the world’s largest medical marijuana dispensary Harborside Health Center in California. One of “the most powerful people in America’s marijuana industry” according to Fortune magazine, he’s a “who’s who” in the Green Rush. More importantly, he’s a man with an honorable mission.
We asked DeAngelo about the supply chain for cannabis, what elements affect pricing for both wholesalers and consumers, and how upcoming legislation might affect the pricing of cannabis in the future.
Direct Cannabis Network: Harborside has a purchasing department where qualified patients can be considered to supply marijuana for distribution to members of Harborside. Tell us about your supply sources – is your supply coming from small family farms, your own cultivation, or cultivators with enterprise operations?
DeAngelo: We have a spot market that covers just under 50 percent of our supply. Anyone with legal qualification can bring cured cannabis to the dispensary for evaluation, and then, negotiate a rate. We have long-term relationships with growers, of course. For legal protection, contracts outline a set amount, at a specified price, and in a predetermined time period.
The biggest issue that we face is the trends that arise. It’s very difficult to anticipate the demand of the market. There’s never an excess of the type of flower that we need; the most in-demand strains are still being undersupplied. This is a reflection of the more sophisticated cannabis consumer who has become part of the scene since cannabis production was legalized. It’s tough for small growers to catch up to the demand.
Scaling up is really the big issue. Trends have become more intense due to a number of factors. First, social media is playing an increasing role of influence. Cultivators, dispensaries, and manufacturers are utilizing social media marketing tactics. Second, we have the entry of celebrity endorsements driving market demand.
Big Data is really powerful. One of the most fascinating things about this time in history is how consumer-facing retail is undergoing such incredible change. Retail methods might completely evolve in the next 10 years to better respond to the demands of the market. Interpreting this data, retailers will be able to pivot faster and respond with the supply that consumers want when they want it.
Factors Affecting Weed Prices.
DCN: What are the factors currently moving prices in California, and what influences do you anticipate will affect the cost of weed in the future?
DeAngelo: Currently, we are doing business directly with suppliers. We have a fair number of growers in the region producing really good product, and we are probably selling our products at a lower price than they would be at another dispensary as a result. Location can affect price – different jurisdictions have different prices. A grower might benefit from selling to a local dispensary because there is less distance to travel in delivering the product, but if a dispensary 30 miles away charges 30% more, the cultivator might be able to secure a better price.
From a dispensary’s point of view, it is also helpful to provide consumers with products that are in high-demand, thereby moving more product faster at the higher market rate. However, we definitely have a price ceiling, and we don’t go above that rate. If we did, we’d drive people away.
One of the major factors behind this price ceiling is the parallel illicit market that delivers lower prices than the legitimate market. The illicit market doesn’t incur the same level of expenses that we do. In the future, new adopters might be concerned with obtaining cannabis in a safer environment than they would in the illicit market. We might see the illicit market diminished by the demand of new adopters who want the experience that they can achieve from visiting a dispensary like Harborside where flower is tested for both safety and potency quantification – CBD, CBN, THC.
Another factor that I anticipate affecting the future of cannabis pricing is young people. “The smartest generation,” with keyboards in-hand, have access to a vast database of human knowledge called the Internet. They are more likely to purchase a product with a cause. They are also more able to synthesize ideas into new concepts and then share them. This manifests in the way that they decide to take action, and it leads to acceleration in the face of reform.
Forgive me, but this leads me to step up to my soap box. The Medical Marijuana Safety Act (MMRSA) was passed by the California legislature some months ago. For the first time, the dispensary supply chain and distribution could radically change to negatively affect pricing and restrict the types of business models allowed. Essentially, the new regulatory approach of the bill, if approved by voters, would interject a distributor level into the supply chain. We currently see a chain that looks like this: Grower > Extractor > Manufacturer, a 3 step supply chain. The new model will be: Grower > Licensed Distributor > Extractor > Manufacturer, a 4 step supply chain.
Prices in this new system could double or triple. Each step in the supply chain adds between 15 and 45 percent to the final price. As the price increases, state taxes are added on top. With competition from the illicit market, this is not sustainable. We can’t build a legal industry in California under these terms. More importantly, it is unconscionable for medical cannabis patients. Cannabis medicine is not covered by insurance or medicare; it must be affordable for those who depend on cannabis for their well-being.
Cost of Goods.
DCN: You’ve seen big sways in the market rate for cannabis – from the first ounce you purchased in ’71 for $15 ($88.69 accounting for inflation) up to $500 an ounce for premium quality in New York City in 2015. In March, the U.S. cannabis price index was listed at about $4.20 a gram (seriously) and $1900 per pound or $120 per ounce.
You attribute some of the past pricing influence to illegality. What are your projections for the wholesale or consumer cost of cannabis if we achieve adult use legalization for California in November 2016 with the Adult Use of Marijuana Act (AUMA)?
DeAngelo: If we achieve adult use in November, I would anticipate that the market would be affected anywhere from one year to eighteen months after issuance of licenses. This would likely lead to a dramatic fall both at wholesale and consumer levels.
Global Marijuana Market.
DCN: What are your projections for American-made cannabis as a major export in the global marketplace?
There will be a market for exported cannabis — specifically for sun-grown not indoor. Indoors, cannabis can be grown anywhere. In California, we are naturally positioned to export to countries where climate won’t allow effective cultivation – Russia, for example. We’ll be able to outcompete.
Cannabis Health and Wellness.
DCN: Juicing fresh cannabis will surely take off in the American market given the health benefits. Do you have any projections for this segment of the market?
DeAngelo: There’s not really a supply chain to offer fresh cannabis here in California. We need effective regulation. The bulk of cannabis production, especially what would be needed for juicing, is in the northern areas that are remote. Getting those products 200 miles by roads that are patrolled by hostile sheriff’s departments in a timely manner is the issue.
We’re finding that the moment that cannabis is cut, the chemical composition begins to change. You don’t want 24 hours to lapse. We’ll need highly efficient transportation. I envision a day where you walk into dispensaries and similar to how you’d find wheatgrass in a juice shop, we’ll have cannabis juice.
DCN: In closing, what is your ultimate dream for your life’s achievement with the cannabis plant?
DeAngelo: I hope to live to see the day that the last cannabis prisoners walk out of their cells, and no one goes back in.
Take action now to support healthy, affordable, safe access to cannabis – contact your representative and voice your opinion on MMRSA.