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medical cannabiS now a SatUrated market
Medicinal cannabis: a viable business in a saturated market
More licenses are issued as the number of patients drops
Juan A. Hernández, The Weekly Journal
The industry of medicinal cannabis has reach its saturation point in Puerto Rico and dispensary and pharmacy owners are suffering from dwindling patients and loss of sales putting at risk an estimated $500 million total investment. According to a study commissioned by the Members of the Medicinal Cannabis Industry (MICaM, for its Spanish acronym), the number of certified medicinal cannabis patients has dropped from 130,000 in mid-2020, to 119, 664 as of January 2022, while the number of cannabis dispensaries has continued to increase. “Since the beginning of the industry in 2017 with the passing of Act 42, the Cannabis Regulating Board has issued 277 licenses for cannabis dispensaries. When taking into consideration the number of certified patients, it is inevitable to conclude that there is a saturation of the market,” argued Gustavo Vélez, founder of
Intelligent Economics advisory firm, and author of the study commissioned by MICaM. As the industry stands now there is an average of 432 patients for every licensed dispensary on the island. That is a drop of about 50 percent from the all-time high of 908 patients in December 2019. particular operational costs, but our calculations point to 1,500 to 2,000 patients in order for the business operation to be viable. You can imagine the situation our members are facing with just a fraction of the patients needed to keep their businesses open,” said Aleczer. The industry’s situation is further compounded by the fact that the Regulating Board has been issuing licenses for new cannabis dispensaries without an apparent policy for the development of the industry. “This is a new industry that has been developing in a somewhat organic fashion, despite the fact that it is a much regulated industry,” Vélez said. “But the Board itself is the first not to comply with the regulations
In fact, imposed by Act 42 from 2017, which requires it to publish an annual report detailing the conditions of the medicinal cannabis market. Not a As the industry single report has been published by stands now there is the Board in the five years since its an average of 432 inception in 2017.” patients for every With fewer patients, revenues licensed dispensary from sales have also dropped on the island. That significantly. is a drop of about According to Vélez, medicinal 50 percent from cannabis sales topped last summer the all-time high with about $22 million monthly. By of 908 patients in January 2022 sales had dropped to December 2019. $10 million. “Average monthly sales per dispensary dropped from $133,660 in 2020, to $39,423 last January,” said Vélez.
Recommendations
To avoid the collapse of the industry, Vélez
Less Patients, Less Revenues
When compared to the U.S. national average of patients per cannabis dispensary “the difference is overwhelming.” The US national average per cannabis dispensary is 1,898, or almost five times more patients than in Puerto Rico. In the specific case of Florida –a state with some 30 million inhabitants– the number of dispensaries is 407 and the average number of patients per dispensary is 1,692, for a total of 688,000 patients throughout the state. MICaM president, attorney José Aleczer, estimated the optimum number of patients per dispensary in Puerto Rico to be between 1,500 and 2,000.
“Of course every dispensary has its own suggests the Cannabis Regulating Board go into a moratorium and stop issuing new licenses. From then on, the Board should develop a set of regional and municipal criteria under which to issue new licenses. According to Vélez, the need of such criteria is more evidently seen in the number of dispensaries operating in the San Juan Metropolitan area, where the saturation is the strongest. Furthermore, the Board should take all the necessary measures to guarantee that a report on the conditions of the industry is published annually. The study also recommends that the government should adopt a policy recognizing the economic importance of this industry for the development of Puerto Rico as a regional and hemispheric hub in the medicinal cannabis business. Finally, Vélez recommended the government to consider the possibility of granting economic incentives to the industry, very much like the incentives given to other sectors such as manufacturing, tourism and the agriculture.
Gustavo Vélez, Economist
Paying the Same but Getting Less
Inflation manifests as more than just higher price tags
Zoe Landi Fontana, The Weekly Journal
Inflation is at its highest level in decades, and with the most recent numbers published before Russia’s invasion of Ukraine, we aren’t exactly sure how bad it is yet. Nevertheless, there’s a lingering feeling that our paycheck isn’t going as far at the grocery store. One culprit is shrinkflation. Shrinkflation is a strategy used by companies to compensate for inflation, but without raising prices directly. It occurs when a product’s price stays the same, but its size shrinks. Coined by British economist Pippa Malmgren in 2009, the phenomenon is a common tactic to hide inflation. Although it may seem illegal to sneakily decrease product sizes while keeping the same price, products are already required to indicate weight, volume, or quantity, thus leaving it up to the consumer to realize the change in value. The main driver behind shrinkflation is higher production costs. When raw materials, labor, and energy prices go up, so does the cost of production, diminishing profit margins. By manipulating the packaging and quantity of the product, but keeping the price the same, a producer can improve or maintain their profit margin. An example of shrinkflation can be seen in General Mills’ chocolatey cereal, Cocoa Puffs, whose family-size box’s contents shrunk from 19.3 ounces to 18.1 ounces. Similarly, in 2014, a large bottle of Coca-Cola shrank from 2 liters to 1.75. “This is similar to what airlines have done, which no longer give away nuts or snacks on their flights to lower their costs. One bag doesn’t mean much, but thousands do. The same happens with the ounces in a bag of potato chips, a few potatoes less is not a great saving, but thousands are a significant saving,” explained economist José Joaquín Villamil.
Noticing Shrinkflation
Unless the new and old packages are shelved side-by-side, it’s difficult to spot this profit-padding tactic. One tip is to look for a redesign on the packaging, which may signal that the product’s size has been changed. Industry experts recommend paying closer attention to price-per-ounce, instead of the overall price tag. By comparing price-per-unit, shoppers can ensure they get the best deal.
Meanwhile, inflation plays out a little differently in the service industry. Restaurants might serve a smaller portion for the same price as before, or provide lower-quality service because of labor shortages. This is called ‘skimpflation’ because the business is skimping on service and quality. Employers who are trying to cut back on expenses could resort to leaning out their staff or they might not be able to find employees who are willing to work for what they can afford to pay them. This results in a scenario such as the following: a server who previously attended to five tables might now need to take care of eight because there just isn’t enough personnel. Although it may seem as if companies are attempting to swindle customers, a lot of what’s happening is a means to survive. For small businesses, these cutbacks occur so that they can keep their doors open.
