The legal cannabis market in the United States has been around for more than a decade, starting with successful ballot initiatives in Colorado and Washington in 2012, before spreading to more than 20 other states in the ensuing years. But as the market has matured, a difficult reality has set in for the industry: The supply of cannabis has far outstripped demand, and there appears to be no solution in sight.

“Oversupply is the biggest issue cannabis companies have, and it extends throughout the supply chain,” says Ben Burstein, the corporate development manager for cannabis B2B technology platform LeafLink.

The reason behind this trend boils down to simple supply and demand economics, where more cannabis is being produced than retailers have the ability to sell. That starts at the grower level, Burstein explains. For growers, marginal costs, or the cost of scaling up production, are extremely low, and most of their biggest expenses are up-front and fixed, coming primarily from buying land, setting up irrigation systems and hiring staff. Once a farm or facility is up and running, it costs very little for a grower to produce as many plants as an operation can handle, and as years go by, their ability to maximize their yields only improves.

For the retailers, it takes years to acquire permits and licenses to open brick-and-mortar cannabis shops. In the first few years of legalization, demand will be strong, and retailers will buy mass quantities of inventory to save on wholesale costs and keep shelves stocked for the flood of new customers.

Read more at Supply Chain Brain