Bulk Flower Discussion

Today I want to do something different than a review. I want to discuss bulk flower and how it's handled in the industry here in Oregon. Before I start I want to say that this post is not about any specific company or brand. This is not how all farms/distributors/dispensaries operate, although I do believe the problem is widespread based on many conversations I've had recently. This issue is also complicated with many layers and parts. So let's discuss. This is quite a long post so it will be continued in the comments.

So what's up with bulk flower pricing? How does it work? Is it based on the price the shop pays? Is it based on what the farm wants it sold at? Is it just made up as we go along? And furthermore, what is a fair markup on bulk flower? 100%? 200%? 300%? More than 300%? Would it surprise you to know that there are dispensaries out there making markups upwards of 500% on low quality flower purchased from distributors? These markups are sometimes achieved by getting product from distributors of well known brands that were meant to either be white labeled (sold under a different name) and/or sold on a lower shelf than their standard quality flower.

Sometimes it's not the shops making the high markups though. What about the distributors? How much of the money is actually making it back to the farm? Is the distributor just getting it dirt cheap and marking it up because they know it's from a good farm and it has a high test result? Are some shops just thinking they are getting a good deal on products from a good brand and being ripped off by the distributor? Does the shop have any responsibility in determining quality or is it just good farm, good test results, good deal?

And what about the farms? Do they take any blame for letting this flower into the market in the first place? Should they have done more due diligence about where the flower was going and how it was to be sold? Could they have even if they wanted to? Should they be developing stronger relationships with dispensaries? Should farms label their batches by quality somehow? Does bulk flower have a shelf life and should farms pull flower from shelves if it sits for too long? Are some farms using their brand to rip off dispensaries and hoping customers won't blame them?

Additionally, if shops are getting these cheap pounds to markup, does that mean there is less space on that shelf for quality flower from farms who aren't willing to let low quality out the door and trust that distributors/shops will do the right thing with it?

I want to look at some example prices, from multiple sources that were given to me anonymously, to show how wide the variation in the markup is by shops for flower that sells on just one specific shelf. That shelf in this case being $7.50 a gram and $150 an ounce before tax. At that price the dispensary grosses between $2,400 as ounces and $3,360 as grams. To remove a level of complication, I am assuming they are able to sell all 16 ounces of the pound. In reality, I'm told there will typically be 1-2 ounces of loss from shake, weight loss, etc. However the shake can be used to make prerolls which can help cover those losses. Additionally, if the shop is storing/handling the flower correctly those losses should be able to be minimized.

I just want to say before we start, that these prices are not public information at dispensaries and my goal is not to make them such. This is just to give an inside look at the variation in bulk flower markups for educational purposes.

Our first example on the $7.50/g shelf, high quality craft outdoor for $1,500 a pound wholesale. That's a 60% markup as ounces and a 124% markup as grams. Pretty low for the shop. I don't see this actually making sense to do unless it brings in customers (loss leader), which it definitely could with the right brand.

Now what about $1,200 for a pound of high quality outdoor? That's a 100% markup on ounces and a 180% markup on grams. Not terrible, but what if that same shop can get a pound of lower quality outdoor (or even indoor), that has high test results, from a farm with a quality brand for 800 a pound or less and sell it on the same shelf? That becomes a 200+% markup as ounces and a 320+% markup as grams!

This may very well be a fair markup in some situations. Dispensaries have a very heavy tax burden due to section 280e of the federal tax code which forbids any business from writing off expenses from their gross income relating to trafficking of a schedule 1 substance like cannabis. Basically this means they pay taxes on their gross income and not their net income. This means a dispensary could potentially be paying an effective tax rate upwards of 70%. However it's really not that simple and if any shop is actually paying this rate, they may want to look into the tax law some more and/or consider restructuring their business. There are many legal ways to reduce the tax burden. In any case, I'm finding it hard to justify a higher markup than the one above.

The lowest pound price I have been informed of, was for $500 being sold on that same shelf, a 380%/572% markup and I got a report that a $500 pound was sold on an even higher shelf 😱 I don't even want to do the math. That's a major difference for the dispensary and in most cases a major difference in quality for the consumer.

Between the massive variation in markups on bulk flower at dispensaries and the nature of bulk flower itself, how is a consumer to know if they are getting a fair deal? With packaged products like extracts and edibles, QC is done by the brand and then delivered to the shop already packaged. Every box represents their brand and they know it. Shops typically mark these products up by around 100% give or take. Due to competition, you won't typically see large variation in price on these products except in remote locations. Consumers can compare prices of packaged products online and know that they are comparing the same product. Comparing prices online would require considerably more work with bulk flower. You would need to call each shop and ask for the harvest date and batch number. Then you need to somehow determine the quality of that batch. I guess I need to start including batch numbers in future flower reviews.

So what is a fair markup on bulk flower? Why is there so much variation in the markups? Is the markup even really the problem? Or is this really just a problem with pricing flower by shelves and THC content? What should farms do to get the most for their work without allowing others to take advantage of their brand? And what are consumers role in this situation? How can they be more educated about their flower purchases? I would love to open a respectful discussion in the comments on this topic. This post is not for pointing fingers so please leave names and brands out of any discussion 🙏🏼