The cannabis nightmare continues. In the past year, cannabis oversupply has driven pot prices down, leading to hundreds of smaller California farms quitting the legal market.

• Cannabis’ price per pound fell nearly 50% between mid-2021 and 2022-end.
• California lost 1,766 cultivation licenses (~25%) since the beginning of 2022 — potentially worsening in July as annual license renewals come up.

Low wholesale prices and high taxes have made it impossible to run a profitable small business — per industry insiders (SFGate).

Pays to be big

With the closure of smaller farms, California’s largest cultivator Glass House (OTC:GLASF) is actually beginning to see a shortage in supply.

• “We’re currently selling it faster than we can grow it” — with plans to ramp up production.
• Large producers have much lower breakeven prices — benefiting from their size.

According to cannabis investor Aaron Edelheit, the market will dwindle to a few farms with the best quality or lowest production costs.

Cannabis markets: While the S&P 500 is up 7% this year, the AdvisorShares Pure US Cannabis ETF (NYSE:MSOS) is down 24%. Until production and demand reach a steady equilibrium or federal legalization comes to market, it’ll be difficult to see a sustained recovery.