Pubdate: Thu, 31 Aug 2017
Source: Wall Street Journal (US)
Copyright: 2017 Dow Jones & Company, Inc.
Author: Jacob Bunge


After decades of dodging law enforcement and fighting for
legalization, U.S. marijuana growers face a new challenge: low prices.

 From Washington to Colorado, wholesale cannabis prices have tumbled as
dozens of states legalized the drug for recreational and medicinal
uses, seeding a boom in marijuana production.

The market is still tiny compared with the U.S. tobacco industry's
$119 billion in annual retail sales, but the nascent cannabis business
has grown to more than $6 billion a year at retail, according to data
from Euromonitor International Ltd. and Cowen & Co..

For marijuana smokers, the price drop is sweet news. Recreational
users and those prescribed cannabis for health reasons have seen
prices decline as wholesale prices have fallen, though some retailers
have pocketed part of the difference, according to New Leaf Data
Services LLC, which researches the U.S. cannabis market.

At Hashtag Cannabis, a Seattle-based retailer running two
dispensaries, co-owner Jerina Pillert said wholesale price declines
show up on the plastic vials holding green-and-tan nuggets of "Super
Silver Lemon Haze" marijuana produced by Longview, Wash.-based Bondi
Farms. A gram sells for about $10 currently, down by a third from the
$15 a gram it fetched in September 2015, she said.

But for growers-ranging from high-tech warehouse operations to
back-country pot farmers gone legit-the price drop has been painful.

Since peaking in September 2015 at about $2,133 a pound, average U.S.
wholesale cannabis prices fell to $1,614 in July, according to New
Leaf. That is the sort of market decline that hit Midwestern corn and
soybean growers in recent years after a string of record-breaking crops.

"There is an increasing recognition, on the part of the industry and
those that grow and dispense, that this market is a commodity," said
Jonathan Rubin, New Leaf's chief executive.

In response, some producers are taking a page from the food industry,
where farmers and food companies increasingly appeal to health- and
environment-conscious consumers. Growth in organic food products for
years has outpaced conventional grocery sales, and products made
without genetically modified crops, gluten and artificial flavorings
can command premium pricing and shelf space.

Stephen Jensen, who secured a state license to grow cannabis in
Washington in 2015, has yet to turn a profit. He is promoting what he
described as natural growing methods.

"We needed to give people a reason to select us," said Mr. Jensen. He
said his Green Barn Farms eschews synthetic pesticides and relies on
natural light over high-powered lamps, which he said helps his
cannabis stand out among more than 1,100 other Washington farms.

Because cannabis remains illegal under federal law, growers can't get
their crops certified as organic, a label that can only be bestowed by
the U.S. Department of Agriculture.

Cannabis farmers instead have turned to alternative labels such as
SunGrown Certified, which requires that growers use sunlight and
water-conservation practices. They hope such labels will entice
smokers and secure shelf space in the 29 states where marijuana is
legal in some form.

Another label, Clean Green Certified, is modeled on U.S. organic
standards. It bars synthetic pesticides and emphasizes what the
program deems fair-labor practices. In May, Washington State passed a
law that would set up a state-level organic-certification program,
though it may need to use a label that doesn't use that word.

That push to differentiate is splitting pot farmers into rival

Indoor-grown cannabis, where climate controls and high-powered lights
allow several crops per year, typically is of a more consistent
quality, industry officials say. Its dense, often bright-green buds
catch consumers' eyes, often fetch a higher price and can be costlier
to produce.

Proponents of marijuana grown outdoors and in greenhouses say indoor
facilities rely on synthetic fertilizers and heavily consume
electricity. They point to a 2012 paper by University of California
Senior Scientist Evan Mills, which estimated that indoor cannabis
production accounted for 1% of national electricity use, though some
growers have been adopting LED lights, which consume less

Jeremy Moberg, owner of Riverside, Wash.-based CannaSol Farms and head
of the Washington Sungrowers Industry Association, says marijuana
smokers will come to care about the environmental cost of their high.

"The socially conscious, premium customer is going to want us because
we're sustainable," he said. "It only takes me 30 seconds to convert
somebody wearing Patagonia and driving a Prius that they should never
smoke indoor weed again."

At Hashtag Cannabis in Seattle, Ms. Pillert said customers
occasionally ask for pesticide-free or sun-grown varieties. Smokers'
main fixation, she said, is the potency rating for the key active
ingredient, tetrahydrocannabinol, or THC: "They want to make sure they
are getting the biggest bang for their buck."

Many in the emergent industry expect marijuana to eventually resemble
the beer business, where pricier craft brews have built followings in
the shadow of cheaper mass-market beers like Budweiser and Busch.

While high-quality strains and specialty brands may secure premium
prices, more low-quality marijuana will be processed into oil used in
vaporizer cartridges or adult-oriented baked goods like brownies and
cookies, growers and retailers said.

Mr. Jensen, the Seattle cannabis producer, said he hopes that his
sun-grown, naturally produced plants over time will yield a 20% to 30%
premium over the average market price.

"I always buy organic products at the store and think there is a
future for that in the [cannabis] industry," said Mr. Jensen. But, he
said, "it's a battle getting that awareness out."
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