State-legal cannabis has been a boon to tons of entrepreneurs who decided to take the plunge when medical and recreational cannabis was legalized in their respective states. For more than a decade, the industry has seen steady growth. But things are changing. They are changing so much that cannabis entrepreneurs are discovering even their industry is not inflation-proof.
National data suggests that spending on marijuana across the U.S. was down 7% through the first half of the year. It is assumed the numbers for the second half will show declines as well. Meanwhile, inflation continues to eat into the average American’s earning power. Everything is up – from gas to groceries and alcohol to cannabis.
Declines in Recreational Purchases
It stands to reason that inflationary pressures would result in less spending on recreational cannabis. Those who buy recreationally are utilizing discretionary income to do so. But as inflation rises, discretionary income tends to fall. Less money to spend on discretionary items means less money to buy cannabis.
Oddly enough, we tend to think that tough economic times lead people to use substances like alcohol and cannabis more frequently. The thinking is that people get intoxicated to drown out their sorrows. But the data shows otherwise.
Despite assumptions to the contrary, alcohol consumption actually declined during the Great Depression. It was only as the economy began recovering that people began drinking more. Likewise, alcohol consumption fell again during the Great Recession of 2007-2009.
The phenomenon really goes back to discretionary income. Most people struggling to pay the bills will put food on the table before they go out and buy alcohol and cannabis.
The Illicit Market Question
There are two caveats to the general assumption that inflation is causing a decline in cannabis sales. The first is the existence of the illicit market. We have long known that black market operators continue to do quite well even in states with legalized cannabis.
Could it be that a drop in legal sales has led to an increase in illicit sales? There is no way to know for sure. Black market operators do not reveal their sales numbers. Still, it is possible. One reason the black market thrives is its lower prices. People with less discretionary income may choose to buy illicit marijuana on the street rather than visiting the local dispensary.
The Medical Market Question
The other caveat relates to medical cannabis. When a patient visits the Deseret Wellness medical cannabis pharmacy in Park City, Utah, they are purchasing what the state considers a legitimate medicine. Is that patient less likely to cut back on cannabis purchases as a result of inflation?
Anything is possible. We often hear politicians talk about people having to choose between food and prescription medications. As expensive as medical cannabis is right now, there may be some patients whose loss of purchasing power has forced them to forgo cannabis purchases in favor of paying the bills.
Inflation and Overall Wellness
As an interesting side note, the same study that showed declines in drinking rates during the Great Depression also showed a general improvement in health and wellness. Apparently, American society generally became healthier during what is largely considered the worst economic crisis in the nation’s history.
Could it be that hard economic times dissuades people from making poor lifestyle choices simply because they don’t have the money to support such choices? And if so, could that mean recession actually has a silver lining?
While you think on that, remember that even cannabis is not an inflation-proof business. As people have less discretionary income, they tend to buy less recreational cannabis.