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Colorado cannabis: Are concerns about dwindling marijuana supply overblown?

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On Jan. 1, Colorado became the first state in the country to legally sell small amounts of marijuana to adults over the age of 21. Business was brisk, with long lines snaking in front of all of the 37 retailers that opened for business on New Year’s Day. 9News in Denver reported more than $1 million in recreational marijuana sales on the first day alone.

Over the next several days, demand died down some, but not enough to substantially diminish the long waits. Heading into the second week of retail sales, Time and other organizations are reporting that retailers may not have enough marijuana to meet demand.

These concerns may be overblown. In an email interview, Elan Nelson, spokesperson for the recreational retailer Medicine Man in Denver, said that they have “been able to keep up with demand,” and that unlike other stores in the Denver-area that have limited the amount of marijuana customers are able to buy, “we do not anticipate needing to limit purchase quantities.” An employee at another Denver-area store that was contacted said he doubted that they would sell out of their supply. And Josh Smith of Breckenridge Cannabis Club laughed when asked if he thought they would run out of marijuana, although he said they have sold out of many edible products.

Still, there’s little doubt that some stores have been caught off-guard by the sheer demand. One dispensary, Northern Lights Natural Rx, was unexpectedly closed on Jan. 5 “for inventory and restocking.” On Monday, calls to The Green Solution went to a recording stating that were unable to answer “due to overwhelming response.” Calls to several stores rang through to voicemail. According to the marijuana site Weedmaps.com, BontanaCare in Northglenn was limiting customers to one-quarter of an ounce and two edibles per customer, and Nelson said that she’s even heard of one store limiting purchases to a gram, typically the smallest amount available for sale.

Basic supply and demand economics has some concerned that prices for retail marijuana could skyrocket, forcing buyers to the illegal black market where prices are typically cheaper. Nelson said that at Medicine Man, prices for one-eighth of an ounce, “the typical customer’s purchase amount,” went up from $25 to $50 on January 1, prices comparable to most other stores in Denver. “This is not an attempt at price gouging,” Nelson says. “This is the reality of the popularity of our product and the limited supply currently in Colorado.”

That gets to the heart of the issue of pricing for a product that has never before been available for retail sales. While prices (and taxes) for retail marijuana may be substantially higher than that of medical marijuana, they’re very likely to drop as more and more stores open for business. It’s a pattern that took place with medical sales when, by last year, many Denver-area dispensaries were offering one-eighth of an ounce for $20 or less. And once retail stores get a feel for the volume of business, they can adjust the amount of product available based on sales figures.

Until sales stabilize and store owners can pour over their books, recreational marijuana retailers may be among the only businesses in America operating on conjecture and projections rather than traditional financial analysis.

“On the first day, we honestly did not know what to expect,” Nelson said of recreational sales. “But we erred on the side of overdoing it, since we had dealt with so much media interest that we hoped would translate into consumer interest. Had we gone too far we could just adjust prices. Apparently, we guessed correctly.”

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