After 1 Year, Mass. Weed Stores Undersupplied, Still Competing With Black Market
One year ago this week, the first adult-use marijuana stores opened in Massachusetts. One of the state’s goals was to move cannabis off the black market. But illegal sales haven’t stopped — and licensed stores are having a tough time getting enough marijuana to meet demand.
'Indicative of a market that is under supplied'
In Chicopee, Theory Wellness is getting ready to open the company's second adult-use cannabis store. On a recent visit, CEO Brandon Pollock pointed out a display of products.
"Tincture boxes, gummy chews boxes and some examples of how we package our flower as well," Pollock said.
But getting enough weed is a challenge.
“It’s a very difficult market right now to purchase wholesale cannabis to then sell to customers,” Pollock said.
Theory Wellness owns another recreational store and two medical dispensaries, along with a cultivation facility. The supply difficulties are coupled with steady customer demand.
“We've seen continued growth month after month,” Pollock said. “Every day we have, say, 50% returning customers and 50% new customers.”
Pollock said when Massachusetts rolled out the recreational market a year ago, cultivation facilities like his were still set up to serve medical customers — a much smaller market. So now they supplement what they grow by buying wholesale, when it’s available.
By law they can only buy from licensed growers in Massachusetts.
“There’s not too many cultivators in the state that have excess product,” Pollock said. “So you can get into bidding-wars situations. Or just sort of these first-come, first-serve situations, where it’s difficult to find what you are looking for at times.”
But the supply problem isn’t stopping new stores from opening. Another marijuana company, INSA, just opened a new one in Salem.
INSA CFO Peter Gallagher said most of the time he limits recreational sales to only a quarter-ounce of flower at a time, even though the state allows sales of up to one ounce. According to Gallagher, other retailers are doing the same.
“That’s indicative of a market that is under supplied,” Gallagher said.
Part of the challenge, he added, is that growing pot legally doesn’t happen overnight.
“It takes time,” he said. “If you think about how long it took us to go from proof-of-concept to licensed and cultivating, and then from cultivating to harvesting, and with finished supply available — that took us over two years.”
Demand is so great that INSA doubled its cultivation capacity in August, and now it’s doubling it again.
The supply shortage got worse this fall, after the state banned vaping cartridges, which were 20-30% of legal purchases. Some vaping customers shifted to the black market. Others stuck with the stores and started buying flower instead.
'The demand for testing...has been crazy'
Gallagher said the supply is also stymied by a bottleneck during required testing. There are only two licensed testing labs in the state.
At one, CDX Analytics in Salem, laboratory assistant Kate Steblenko prepared a sample for testing by grinding it using a mortar and pestle. The distinct scent of marijuana wafted into the air.
“It takes some getting used to, but I worked at a brewery before this, so I’m used to smelling like recreational substances after work,” she said.
Pot that is sold in stores in Massachusetts must be tested for things like pesticides, bacteria, yeast, mold and potency.
“Demand for testing in the past year has been crazy," said Brian Strasnick, president and CEO of CDX Analytics.
Strasnick said demand for testing went from 15 to 20 samples a day under the medical program, to 4,000 a month after adult-use started.
“I see that as only exploding as more and more cultivators and dispensers come on board and become licensed,” Strasnick said.
Strasnick said there have been times when it could take up to four weeks for his lab to do a complete set of tests. But he’s addressing that. When the first adult retailer opened up, his lab was running one shift a day. Now it’s running three.
“If there were more hours in the day, we would probably run four shifts,” Strasnick said. “When I started. I didn't realize how much the demand was going to be.”
'People are willing to pay a premium'
Steve Hoffman, the chair of the Cannabis Control Commission, said new testing labs are in the process of getting licensed — and the testing time is quicker now.
“It's down to a couple of days,” Hoffman said. “So I'm not convinced that there really is a supply shortage right now.”
In most industries, a supply shortage would lead to price increases. In the case of legal pot, prices have stayed pretty much the same since the first retailers opened a year ago — mostly about $300 to $400 an ounce, plus taxes.
Unlike other industries, though, the stores are competing with an illegal market where prices are lower — between about $150 and $280 an ounce.
Hoffman said it will always cost more on the legal market because of taxes, and the cost of regulations and testing — something he believes people want.
“They know exactly what they're getting in terms of potency. They know exactly what they're getting in terms of lack of chemicals and pesticides,” Hoffman said. “And I think people are going to be willing to pay a premium just to do something legal, rather than illegal.”
Hoffman said the legal industry is still young, so it’s hard to measure its effect on the black market.
“I would be willing to wager that has been a relatively small impact, given that we have 30 retail stores open right now,” he said.
Legal market could 'actually spill more people into the black market'
More than half of the stores are in Worcester County and west. Kamani Jefferson of the Massachusetts Recreational Consumer Council said that’s one of the reasons the illicit market is still serving a lot of people.
“I would say probably more than 50% of consumers in Massachusetts are still buying illegally, whether it’s because a.) the prices are too expensive or b.) some of these dispensaries are too far,” Jefferson said. “People are like, ‘Why do I need to drive an hour or two to get it when I can go to the same person I’ve been getting it from, who lives five minutes away?’”
The legal market has begun to normalize the use of marijuana. But one western Massachusetts resident, who did not want to be named because he buys and sells on the illegal market, said the black market may increase because of the legal stores.
“As more and more people fall in love with marijuana and their pocketbooks are hurting, it’s going to actually spill more people into the black market,” he said.
But licensed pot retailers don’t foresee a drop in demand. Their focus is having enough stores and supply to feed it.