KC CHRONICLE   April 2023 Newsletter

For better or worse, most cultivations decided against increasing their canopy size in preparation for recreational sales. This is most likely due to lack of funding due to comparably slow sales and large back stocks associated with the medical program. Compound this with the opportunity for an artificial price hike and you have the perfect storm that justified cultivations to expand slowly. Back stock was expected to last until the new canopy was harvested but the product was bought up faster than expected by the wave of new consumers to the market. After all, Missouri has had the largest recreational cannabis launch in history.

First and foremost, the prices have increased partially due to the laws of supply and demand. The industry's supply has dwindled while the demand has launched sky high which means there are more people willing to pay a premium to have access to cannabis. The increased demand also leads to the need for increased operations which then increases costs at the cultivation. As mentioned above and to add some nuance to the price increase is the opportunity to capitalize on elongating the article supply shortage to keep the price higher for longer. This helps cut away some non-vertical competition and increase revenues for a while. As for when will the prices go down? It is hard to say and even harder to know. They will be directly affected by the supply chain and many cultivators aren’t expecting increased supply until well into summer. I expect the product providers will be able to ride these high prices through the summer and deep into the fall before competition in the market starts to force prices down again. Ultimately the cultivators set the price for their goods based on their own needs and the dispensaries adjust accordingly.

Cultivators set their prices based on market demand and comparable quality in the market currently. A quick and basic explanation is that the prices are dictated by the producers and some producers own dispensaries as well which affords those dispensaries exclusive pricing and guaranteed stock. Many dispensaries like KCC, are not attached to a cultivation which means their prices are going up and supply is going down. This puts stand alone dispensaries in a tough spot; raise prices to be able to afford the new higher costs of products or take the financial hit and hope the shortage ends quick enough that you don’t go bankrupt. An average successful dispensary only brings in about 10% profit annually making them a bit less flexible. Either way, KCC will continue to serve our communities and provide the industry's best atmosphere.

The taxes, or lack thereof, is a big reason why voters were so willing to pass adult-use cannabis laws. When compared to the national high cannabis taxes in Illinois, it was a breath of fresh air to Missouri voters and smokers to see that they weren’t going to be gouged for choosing legally purchased cannabis over utilizing the free market to get their weed. Currently, all cannabis sales have a 6% state tax (4% for medical sales) that funds the operations of the cannabis program with all remaining funds being transferred to the MVC for health and care services for military veterans. On top of this, local jurisdictions can add an additional 3% tax that flows into your local community. Check with your city or county to verify if they opted into the 3% tax and to see exactly where those taxes go.

MSO stands for Multi-State Operator. These are companies that have been started outside of Missouri and have won cannabis licenses in Missouri. MSOs have the advantage of being better funded than local businesses because they usually have a larger investor pool to choose from. The owners, investors, and management of MSOs usually reside outside of Missouri in states like Arkansas which means the money you spend at their stores gets funneled out of state and out of your local economy. The main goal of an MSO is to increase company value and reduce operational cost to provide a better return for its investors and not necessarily provide a high quality product or service. MSOs often use the tactic of disguising themselves as local businesses by utilizing names that differ from their larger entity name. In fact, most of KCC’s nearby competition are all out of state MSOs. With that being said, many studies show that people choose to buy locally as long as the product or service provides comparable value. Buying local ensures that your money is being reinvested into the community that you live in. It allows locally owned businesses to then use more local resources which increases community sustainability and create more local jobs who then serve local consumers. It keeps control of businesses in your community and out of the hands of Arkansas or California boardrooms.