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Oversupply has Pennsylvania marijuana store owners not feeling the buzz

KRIS B. MAMULA Pittsburgh Post-Gazette

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APR 17, 2023

Medical cannabis users in Pennsylvania have been enjoying a two-year high with prices falling as much as 62%, but store owners are not feeling the buzz.

Balance sheets are awash in red ink for multi-state operators that run the dispensaries where cannabis products are sold, and the development of two big grow and processing facilities in the Pittsburgh area is up in the air. Oversupply is part of the problem, said Steven M. Schain, principal at Philadelphia-based Smart Counsel LLC and a cannabis industry veteran

“This is extremely good for consumers,” he said. “This is panicky time for the companies. Everybody seems to believe cannabis is a goldmine. It is not.”

Since reaching a peak price of $14.53 per gram in July 2021, the retail dry leaf price for cannabis skidded to $9.81 per gram by March 23 — a 32.4% drop, according to the Pennsylvania Medical Marijuana Advisory Board. A steeper decline was reported in wholesale prices, which plummeted to a per gram price of $4.09 from a peak of $10.65 in January 2021 — down an eye-watering 62% in 26 months.

Pennsylvania has 898,992 patients and caregivers registered to buy cannabis products for medical conditions, which include anxiety, and 173 dispensaries where the products are sold. Total sales since 2018 and as of March 30 were $7.3 billion.

Use of marijuana for medical purposes was approved by the Pennsylvania legislature in 2016 and the first dispensary opened two years later.

Falling cannabis prices have translated into losses for the big multi-state operators that dominate Pennsylvania’s legal pot market.

Quincy, Florida-based Trulieve Cannabis Corp., which has 20 dispensaries in Pennsylvania, including ones in Cranberry Township, Squirrel Hill and North Side, reported a net income loss of $246.1 million on $1.2 billion in revenue for 2022. Steeper losses were reported at Jushi Holdings Inc., which is based in Boca Raton, Fla. and controls about 10% of Pennsylvania’s cannabis market: a net loss of $202.3 million on revenue of $284.3 million for 2022.

Pennsylvania isn’t alone. In the last two years, stocks for publicly traded cannabis companies were down 71%, Mr. Schain said.

The supply of cannabis products has been outpacing consumer demand, even though demand has been rising, Jushi Chief Strategy Director Trent Woloveck said.

“Supply has well outstripped that demand increase,” he said. “I don’t see any more supply coming on line due to current demand.”

The upside down market has raised questions about the future of two regional cannabis cultivation and processing facilities that were announced with fanfare in 2021. At the time, product prices were peaking.

Trulieve, which touts its product as a way to “take your senses on an unforgettable journey,” spent about $10.3 million to buy three buildings and nearly 37 acres in McKeesport in 2021 with plans to develop a 508,000-square-foot cultivation and processing center — more than twice the size of a Walmart super store. The former U.S. Steel Tube Works once occupied the site and the company received a $2 million state redevelopment assistance capital grant for the purchase, with the promise of 800 new jobs in an economically stressed municipality.

Trulieve did not respond to a request for an update on the McKeesport project.

In May 2021, Atlanta-based Parallel, which is privately held, announced plans for a 124,000-square-foot grow and processing facility on Beaver Avenue in Pittsburgh’s Chateau neighborhood, with an anticipated start date of mid 2021. The site had room for a future 36,000-square feet facility expansion.

Among Parallel’s products are Coral Reefer and Float and Heights.

But Parallel’s plans to go public in a deal valued at $1.9 billion with Los Angeles-based Ceres Acquisition Corp. collapsed in September 2021, with CEO William “Beau” Wrigley stepping down. Since then, the company has been dealing with investor lawsuits over financial disclosures and other matters.

Parallel officials did not respond to a request for comment.

Evaporating profits in recent years have forced cannabis companies to rein in capital expenditures.

“We’re not seeing an investment in infrastructure,” Mr. Schain said about the industry.

Legalization of adult-use cannabis could spike demand in Pennsylvania as it has in other states. Michigan, for example, where recreational pot has been legal since 2019, hit a record $250 million in sales in March, according to Cannabis Business Times.

But Ohio, Maryland, New Jersey and New York, where recreational cannabis use is already legal, could siphon sales that would otherwise have gone to Pennsylvania as the state legislature continues to wrangle over making adult use legal. Former Gov. Tom Wolf and Lieutenant Gov. John Fetterman both advocated for recreational use, but were unable to get the prohibition ended.

Like his predecessor, Gov. Josh Shapiro supports adult use legalization — and the tax revenue it would generate — but that isn’t expected to happen until 2025, according to cannabis data company BDSA of Louisville, Colorado.

Despite investor exuberance that marked cannabis’ legalization in Pennsylvania, the industry is highly regulated and operates on razor thin margins, Mr. Schain said. Moreover, cannabis like corn or any other crop commodity, is subject to price fluctuations.

The slide in cannabis prices could continue at least through the end of the year, he said.

“Nobody in cannabis focuses on risk management, so when the water drops, everybody’s in a tizzy,” he said. “And that’s where we are now, beyond overextended.”

Kris B. Mamula:

First Published April 17, 2023, 5:59am


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