Here’s How to Reduce the Cost of Cannabis for Consumers

This story originally appeared on Green Market Report

On August 6 we published an article that illustrated the savings for consumers and additional profits for cultivators that could be produced through the use of a properly organized Cannabis Cooperative Association (“CCA”). This article describes the savings for consumers and the additional profits for cultivators in the movement of cannabis in the form of extracted oil.

As we have said on multiple occasions, a CCA is the most financially efficient structure for engaging in business in California’s cannabis industry. The utilization of a CCA for the movement of cannabis as extracted oil produces even greater price reductions for consumers and increased profits for cultivators than with flower. This occurs because more costs are incurred between the cultivator and the consumer in the movement of extracted oil than in the movement of flower.

We have once again assumed the cannabis material is moved from cultivator to consumer through a fully integrated CCA. A fully integrated CCA is a CCA that is a single entity from cultivator to consumer for financial reporting purposes. Since the benefits of conducting business through a CCA occur at each step in the movement of cannabis from cultivator to consumer, a partially integrated CCA will always be a more financially efficient structure than a comparable conventional structure.

The first spreadsheet illustrates the division of a total of $10,000 paid In the first spreadsheet, we have allocated as dollar amounts the slices of the $10,000 total paid The foundation for the first spreadsheet is a sale of five kilograms of trim

In the preceding spreadsheet a total of $10,000, including Sales Tax and Local Cannabis Tax, is paid The dispensary has an after-tax profit of $1,182 on income of $2,658; the distributor has an after-tax profit of $394 on income of $1,314; the manufacturer has an after-tax profit of $394 on income of $1,751; and the cultivator has an after-tax profit of $394 on income of $1,051.

In the spreadsheet below we have assumed the cannabis is refined and moves from cultivator to consumer through a fully integrated cannabis cooperative association. We have also assumed the profit to the cultivator as the owner of the CCA is doubled

In the preceding spreadsheet, the costs for the cultivator, manufacturer, distributor, and dispensary are the same as in the first spreadsheet. The tax rates also remain the same. We have assumed any income tax at the dispensary level is included in the $787 of costs. The shifting of the amounts to which the tax rates are applied produces dramatic savings for the consumers.

In the preceding spreadsheet which reflects the use of a fully integrated CCA, a total of $6,427, including Sales Tax and Local Cannabis Tax, is paid The total cost of the refined oil to the consumers, including taxes, can be reduced The preceding analysis is based on the sale of refined oil in the adult-use market. The use of a fully integrated CCA to move cannabis from cultivator to patient as a medical cannabis product creates even more dramatic savings for patients, or greater profits for cultivators, or both.