Will Colorado's Cannabis Market Come to Resemble Oregon's?

How is Colorado's cannabis industry doing and how does it compare nationally? What can Oregon tell us about the future marketplace in Colorado?

What happened since Oregon launched its recreational market? Oregon has been plagued with vast oversupply troubles that have caused prices on cannabis to plummet. Colorado, on the other hand, has constrained the supply of marijuana to encourage a more balanced market. In essence, Oregon has taken the free market approach which allowed vast supply, while Colorado has taken a much more hands-on attitude, keeping prices stable.

WHY IS THIS A PROBLEM?

Eventually, the free market always wins in economics. Oregon's recent entrance into the legal cannabis market has shown what true prices of marijuana should be. Colorado has constrained supply to keep prices artificially high. As more states legalize and supply continues to increase, Oregon's prices will be the new floor in the market – 50 percent lower than Colorado prices today. These prices will continue dropping as supply outstrips demand.

JEFF SESSIONS GREENLIGHTS FEDERAL CRACKDOWN ON MARIJUANA

THE COLORADO MARIJUANA INDUSTRY WILL LOOK LIKE OREGON'S SOON

Marijuana is an agricultural commodity that will be treated accordingly as more entrants come into the market. Once interstate commerce occurs, it will be impossible for a state to effectively constrain supply to artificially inflate the price as Colorado is currently doing. Oregon will represent the new norm with prices dropping precipitously until demand and supply come into better alignment. Colorado will be the new Oregon and the cannabis industry will have some major readjustments.

MARIJUANA REAL ESTATE WILL HAVE PROBLEMS

In the Denver metro area, there are hundreds of buildings that are class C/D, built for growing marijuana that will no longer be viable. As prices drop, the overhead (power, rents, etc…) will make these buildings obsolete. Some marijuana real estate will be okay if it is general purpose that can be tenanted for other uses; but the rental rates will go down dramatically with other tenants.

Colorado will soon follow in Oregon's footsteps as the industry transitions to its next stage. Many cannabis businesses won't be viable under this new, quickly approaching paradigm. This evolution will impact real estate owners as well.

Colorado and Oregon have more in common than just high housing costs – Colorado's marijuana industry will look a lot like Oregon's sooner than many think.