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Prior to the Russia-Ukraine conflict, rising interest rates and inflation were two of the most talked-about subjects on any major financial media network.

From gas prices to food prices, inflation has impacted almost every industry across the global economy. Cannabis is one of the only industries that has not been impacted by inflation and believe our readers should be aware of this data point. 

According to cannabis analytics firm Headset, the price per milligram or gram of tetrahydrocannabinol (THC) in dried cannabis flowers, edibles, and vape products has fallen by 16.7%, 11.8%, and 12.4%, respectively, since January 2021. 

The cannabis analytics firm’s information comes from the states it tracks cannabis sales data from (California, Colorado, Michigan, Nevada, Oregon, and Washington) and we find the drop in prices to be of importance. 

A Sector that is Not Immune to Supply Chain Issues

After we further analyzed the data, we learned the cannabis industry has not been immune to supply chain disruptions and labor market challenges. Another cannabis market research firm, Brightfield Group, reported that the vape pen market has been negatively impacted by supply chain disruptions, higher labor costs, and higher ingredient prices.

These types of disruptions have impacted margins for cannabis companies and when compared to inflation, we consider this to be a bigger risk for the sector. Going forward, we will monitor how the trend impacts the consumer which has not been negatively impacted as of yet.

Although we are favorable on the trend from a consumer standpoint, the lack of inflation seems to be benefiting large-scale multi-state operators (MSOs) and making it more challenging for craft and small-scale brands. 

Over the next year, we expect the cannabis industry to continue to consolidate and believe the current trend could accelerate the number of mergers and acquisitions (M&A) in the sector. So far this year, we have seen the consolidation trend continue and expect to see a spike in M&A deals in the back half of the year. 

During the last year, the cannabis sector has been under considerable pressure and the stocks continue to trend to the downside.