Pre-Roll Market Report:

In the early medical market, everything was way overpriced because there was such a shortage. $1000 per pound of trim was the going rate. But by the beginning of 2022, we saw the first “crash” of wholesale market rates in raw materials. Everyone’s scaling up efforts really started hitting at the same time, and trim, for example, dropped to about $400 per pound. It was a major correction in the market due to undersupply going to oversupply. Everyone saw the medical market was not nearly as large as everyone expected. Then when adult-use legalization came up, no-one really knew whether the rec bill was going to pass, and everyone was scared to start scaling up again until it was set in stone. So when rec hit there was almost overnight another big shortage of supply. So by the end of Q1 23 and into Q2 2023, all operators tried to scale up again to maximize what they were putting out there, knowing that the demand is now there. It was a serious case of whiplash for everyone. Now that we’re about 9 months post-legalization, all of that scaling up is starting to have an impact, and both supply and demand are finally stabilizing.

It’s really similar to what we see in other markets, except in Missouri swings to the left and right are happening very fast, and rebounds are happening much faster. It’s taking other markets 2 years to do what Missouri is doing in 6 months. Missouri has matured so quickly that it’s just trying to keep up with itself.

Part of that is the very limited number of licenses they awarded. We don’t have hundreds of cultivators like many other states. Only about 100. Everyone experiences the pain points much faster, but also have confidence to know when it’s time to pull trigger and scale up, versus when to wait.

Only 86 cultivation licenses awarded in the whole state, originally. And every group was allowed to own up to 3, so there were even fewer actual cultivators. We’re seeing a lot of consolidation now happening, which changes market dynamics for sure.

In the beginning, a lot of big players that were locally based tried to create a non-organized union. They tried to work together and keep outsiders out of the market and really let them know that locals run the show here. That worked. In 2022, if you weren’t part of that group you really struggled to do business in the state. Only in the past 2-3 months has that gone away and competition mode is in full swing. Everyone is trying to set their own course and stand on their own two feet. That’s happening because they all have the same aspirations and strategic plans, all trying to acquire the same things, and go after the same audience.

Infused pre-rolls weren’t even allowed until this year. So limited options at first. Now they are finally showing up. In general, Missouri as a whole is still very much a flower-strong sales market. Edibles and vapes have a good chunk of the market, concentrates are very small. But I absolutely believe that pre-rolls are the best flower product for a casual smoker, especially somebody new to cannabis. Infused pre-rolls are going to grow as prices come down and there are more differentiated infused options.

Go for infused pre-rolls. If you’re not vertical, it will be hard to compete with the folks that are and can get good cost on their own materials. There is just less diversity and less opportunity to differentiate yourself in the standard pre-roll market. Big guys will continue to dominate, and it will be hard for new people to enter that space. Infused pre-rolls, that is not yet dominated because there are so many ways to infuse a pre-roll, and the end result is very different from one manufacturer to another. There are lots of unique characteristics that would allow a smaller operator to get on the map with infused pre-rolls.

Big guys, they compete just on price and have lower cost to produce. We haven’t seen a real connoisseur audience in MO yet, like we see in CO, that is willing to pay more for a better, premium product.

Part of it is education. Most consumers walk into stores and just don’t really know the differences beyond that the product is infused. So at that point it loses the market because consumers think they are pretty much all the same, so just pick the cheapest option. But over time people will learn the differences based on quality and consistency, and you’ll see those stronger quality brands increase their footprint.

Best margins they will get is in their pre-rolls. Such a small amount with such a big markup. More and more people will get into this category over the next several years.

I expect there to be a lot of downward pressure on wholesale pricing. Cultivators will continue to scale up and reach that point where they can’t just sell their flower and trim outright. Pre-rolls will be their number 1 go-to to monetize their flower into a different product. It’s easy compared to vapes, gummies, etc. Investment in pre-rolls will make more money than flower sold by the pound. So the cultivators themselves, bigger ones, will start to lean on the pre-roll market to move their excess supply. That will create that downward pressure.