September 27, 2019

CANADA CANNABIS SPOT INDEX — September 27, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published September 27, 2019

*The provincial excise taxes vary. Cannabis Benchmarks estimates the population weighted average excise tax for Canada.

**CCSI is inclusive of the estimated Federal & Provincial cannabis excise taxes..

The CCSI was assessed at C$7.31 per gram this week, down 0.9% from last week’s C$7.38 per gram. This week’s price equates to US$2,499 per pound at the current exchange rate.

 

This week we examine the Canadian cannabis market’s supply and demand balance, or lack thereof. Typically, commodity traders analyze the fundamental health of a market to gauge price direction from current levels. This usually involves computing supply, demand, and product inventory levels to measure whether a market is tight (more demand than supply) or loose (more supply than demand).

 

Product inventory is the most important number to monitor. In the case of the Canadian cannabis markets, Health Canada publishes the end-of-month finished and unfinished inventory of both dry cannabis and cannabis oils logged in its Cannabis Tracking System. This number has been growing rapidly, with the most recent report showing end-of-June inventory levels sitting near 329,899 kg. The magnitude of this number is alarming, but what is even more alarming is the path to get there.

Source: Cannabis Benchmarks, Statistics Canada, Provincial cannabis websites

Using the data provided by Health Canada, Cannabis Benchmarks has calculated the massive imbalance between monthly supply coming from the over 200 licensed cannabis producers (LPs) and steady monthly Canadian consumption. For June, the last month reported by Health Canada, we estimate total supply of cannabis to be 62,671 kg, while consumption from the medical and recreational markets is only 11,178 kg. Simply put, supply levels in June were over five-and-a-half times greater than demand, with the excess product pushed to federally or provincially regulated facilities and sitting onsite at the locations of distributors and retailers. 

 

In the near term, this is bad news for LPs as excessive inventory usually leads to declining prices, which could force LPs to write off the value of old, unsaleable inventory and also write down the value of the remaining inventory and biological assets on their balance sheets (which for Canopy Growth, for example, were carried at a value of $500 million as of June 30, 2019). 

 

Longer term, however, lower prices could be a trigger that swings customers from the still robust illicit market to the legal one. Expanding the legal market will increase demand for licensed products, helping to rebalance it by narrowing the spread between supply and demand. 

 

As part of our analysis this week, we projected supply, demand, and inventory from July through September. Inventory projections for Q3 can be seen in the chart below. After June, we grew production by 5% each month, increased non-medical consumption by 10% each month, and dropped medical consumption by 10% each month. The result was a continuous build up in product inventory to a staggering 499,200 kg. Based on our estimated September demand of 13,601 kg, this works out to almost 37 months or just over three years of demand.

*The provincial excise taxes vary. Cannabis Benchmarks estimates the population weighted average excise tax for Canada.

**CCSI is inclusive of the estimated Federal & Provincial cannabis excise taxes..

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Cannabis Benchmarks®, a division of New Leaf Data Services, LLC

27 September 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

U.S. Cannabis Spot Index — September 27, 2019

U.S. Cannabis Spot Index — Published September 27, 2019

U.S. Cannabis Spot Index up 0.5% to $1,412 per pound.

 

The simple average (non-volume weighted) price decreased $21 to $1,586 per pound, with 68% of transactions (one standard deviation) in the $891 to $2,280 per pound range. The average reported deal size declined to 1.8 pounds. In grams, the Spot price was $3.11 and the simple average price was $3.50.

 

The relative frequency of trades for each grow type was largely stable this week, with only a marginal decrease in that for indoor flower visible in the chart below. Greenhouse product’s share of the total documented weight moved nationally expanded by almost 2% this week. The relative volume of outdoor flower contracted by the same proportion, while that for warehouse product was unchanged.

 

 

The U.S. Spot Index rose by 0.5% this week to settle at $1,412 per pound. While in previous years the attention of wholesale market participants at this point in the season has typically been focused on securing product from the upcoming autumn crop, the current crisis of individuals falling ill and even dying from vaping has the potential to inject significant uncertainty into legal cannabis markets. At this point, consumer response to warnings by federal and state regulators is not entirely clear. 

 

Although demand for vape products could be suppressed overall, reports attributing the bulk of the problem to products from illicit sources could actually drive greater purchasing in legal markets, where products are tested for contaminants to varying extents. However, this week Massachusetts’ governor declared a temporary ban on all vape products, both cannabis and nicotine. If any of the major legal cannabis states follow suit, wholesale markets for trim and sun-grown flower used for extraction would likely be impacted, while demand for smokable flower could expand.

Trends in adult-use and medical cannabis flower pricing observed earlier this month were disrupted this week. The national volume-weighted price for flower to be sold to general consumers declined this week, due primarily to a significant downturn in the recreational sector of California’s market. 

 

On the other hand, prices for medical flower jumped on increases in Arizona, Massachusetts, Maine, New Mexico, Rhode Island, Connecticut, and Washington, D.C. 

 

October Forward closes up $50 to $1,300 per pound.

 

The average reported forward deal size declined 1 pound to 46 pounds. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower was 57%, 28%, and 15% of forward arrangements, respectively. The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 43 pounds, 42 pounds, and 63 pounds, respectively.

 

At $1,300 per pound, the October Forward represents a discount of 8.0% relative to the current U.S. Spot Price of $1,412 per pound. The premium or discount for each Forward price, relative to the U.S. Spot Index, is illustrated in the table below.

Headlines From This Week’s Premium Report:

  • California

  • Reports State Entirety of Legal Market Will Be Using Required Traceability System by End of October
  •  
  • Colorado

    Wholesale Prices Continue to Climb on Strong Demand, With Increased Market Consolidation Possibly Also Contributing

  • Oregon

  • Summer Weather Conditions and Those Forecast for October Appear Generally Favorable for Outdoor Growers
  •  
  • Washington

  • State Tax Collection Data Shows Retail Demand Reaching Record Heights in August
  •  
  • Massachusetts

  • Adult-Use Sales Continued to Expand in August, but Temporary Ban on Vape Products Could Stymie Previously Consistent Growth

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Cannabis Benchmarks®, a division of New Leaf Data Services, LLC

27 September 2019.  Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

September 20, 2019

CANADA CANNABIS SPOT INDEX — September 20, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published September 20, 2019

*The provincial excise taxes vary. Cannabis Benchmarks estimates the population weighted average excise tax for Canada.

**CCSI is inclusive of the estimated Federal & Provincial cannabis excise taxes..

The CCSI was assessed at C$7.38 per gram this week, up 2.2% from last week’s C$7.22 per gram. This week’s price equates to US$2,524 per pound at current exchange rates.

 

This week we examine the number of retail stores open in each province and how that has impacted both legal cannabis sales and the black market. After reviewing information from the provincial cannabis sites, we determined there are a total of 555 retail stores operating in Canada. This works out to 1.5 stores for every 100,000 Canadians. Let’s compare this to liquor stores. The Liquor Control Board of Ontario (LCBO) website states there are 660 liquor stores across Ontario to serve 14.4 million people. This works out to 4.6 stores for every 100,000 Ontario residents. 

 

The cannabis store numbers look even worse when we break it down by province. Except for Alberta with 286 store locations, all other provinces appear as if they will severely underserve the growing demand for cannabis products. For example, Ontario and Quebec contain 61.5% of the Canadian population, but only 8.2% of stores, or 46 locations.

Source: Cannabis Benchmarks, Statistics Canada, Provincial cannabis websites

The chart below shows the current number of stores in each province per 100,000 residents. Alberta is an anomaly with 6.5 stores per 100,000 people. While most of the other provinces are above the national average, Ontario, the largest, is well under it. In Ontario there are currently 0.17 cannabis retail stores and 6.5 liquor stores, respectively, per 100,000 people. We recognize that demand is not the same for these two categories, but there appears to be a major imbalance.

Source: Cannabis Benchmarks

A comparison that further illustrates this discrepancy is the June 2019 cannabis sales from online and physical stores in Alberta and Quebec as reported by Statistics Canada. Cannabis sales in both provinces were $18M during the month of June, but their populations are very different.

Source: Cannabis Benchmarks, Statistics Canada

Quebec’s population is roughly twice that of Alberta, yet sales are the same. As it is extremely unlikely that Albertans simply consume twice as much cannabis as Québécois – in addition to the fact that adult residents of Quebec could simply order products online if going to a shop is not convenient – this data suggests that licensing more legal cannabis outlets and increasing physical access to the regulated market is a step that can be taken to boost legal sales and, by extension, reduce the size of the illicit market.

*The provincial excise taxes vary. Cannabis Benchmarks estimates the population weighted average excise tax for Canada.

**CCSI is inclusive of the estimated Federal & Provincial cannabis excise taxes..

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Cannabis Benchmarks®, a division of New Leaf Data Services, LLC

20 September 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

U.S. Cannabis Spot Index — September 20, 2019

U.S. Cannabis Spot Index — Published September 20, 2019

U.S. Cannabis Spot Index up 1.1% to $1,405 per pound.

 

The simple average (non-volume weighted) price increased $7 to $1,607 per pound, with 68% of transactions (one standard deviation) in the $890 to $2,323 per pound range. The average reported deal size declined to 2.0 pounds. In grams, the Spot price was $3.10 and the simple average price was $3.54.

 

The relative frequency of trades for greenhouse flower increased by over 2% this week. The relative frequency of transactions involving indoor product decreased by the same proportion, while that for outdoor flower was stable. Greenhouse product’s share of the total documented weight moved nationally expanded by almost 3% this week. The relative volume of outdoor flower contracted by the same proportion, while that for warehouse product was unchanged. 

 

 

The U.S. Spot Index rose by 1.1% this week to settle at $1,405 per pound. This is the latest in the year that a new annual peak has been established by the U.S. Spot in over three years, disrupting a trend of such milestones being set earlier each year. In 2016, the annual high occurred in late May; it was observed in late March in 2017, and in the first week of the year in 2018. 

 

Prices in California, Colorado, and Washington State continued to climb at relatively measured paces this week, while Oregon’s composite rate jumped by a more significant amount once again. As we noted above, Massachusetts’ legal cannabis market is now the most expensive in the country. However, it does not wield significant influence on the U.S. Spot Index as it is currently still much smaller than the Western markets, particularly in terms of the volume of flower traded.

Similar to last week, the national volume-weighted price for flower to be sold to general consumers jumped this week as nearly every market in which adult-use sales are taking place saw rates for such product increase, with Alaska and Nevada the only exceptions. Prices for medical flower slipped for the third straight week on decreases in that sector of the market in California, as well as in Arizona, Illinois, Michigan, Maine, New Mexico, and some other smaller medical-only markets.

 

October Forward assessed up $50 to $1,250 per pound.

 

The average reported forward deal size declined 1 pound to 46 pounds. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower was 57%, 28%, and 15% of forward arrangements, respectively. The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 43 pounds, 42 pounds, and 63 pounds, respectively.

 

At $1,250 per pound, the October Forward represents a discount of 11% relative to the current U.S. Spot Price of $1,405 per pound. The premium or discount for each Forward price, relative to the U.S. Spot Index, is illustrated in the table below.

Headlines From This Week’s Premium Report:

  • California

  • State Spot Index Climbs to Approach $1,300 Per Pound; Rates for Flower Designated as Adult-Use Settled Above $1,500 Per Pound This Week
  •  
  • Colorado

    Composite Price Ascends to New Annual Peak This Week and is Up About 40% Year-Over-Year

  • Oregon

  • Wholesale Prices Continue to Climb, But Some Market Participants Expect a Larger Drop in Rates from the Fall Harvest Compared to Last Year
  •  
  • Washington

  • State Spot Index Jumps to New Year-to-Date High This Week, Defying Post-Labor Day Trends from Prior Years
  •  
  • Illinois

  • Medical Cannabis Demand Continues to Boom Ahead of Adult-Use Sales; Wholesale Revenues for August Reached a New Record High for the Third Straight Month

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Cannabis Benchmarks®, a division of New Leaf Data Services, LLC

20 September 2019.  Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

September 13, 2019

U.S. Cannabis Spot Index — September 13, 2019

U.S. Cannabis Spot Index — Published September 13, 2019

U.S. Cannabis Spot Index up 1.1% to $1,389 per pound.

 

The simple average (non-volume weighted) price increased $4 to $1,600 per pound, with 68% of transactions (one standard deviation) in the $854 to $2,347 per pound range. The average reported deal size declined to 2.1 pounds. In grams, the Spot price was $3.06 and the simple average price was $3.53.

 

The relative frequency of trades for outdoor flower increased by 1% this week. The relative frequency of transactions involving indoor product decreased by the same proportion, while that for greenhouse flower was stable. Greenhouse product’s share of the total documented weight moved nationally contracted by almost 3% this week. The relative volumes of warehouse and outdoor flower grew by about 2% and 1%, respectively.

 

 

The U.S. Spot Index rose by 1.1% this week to settle at $1,389 per pound. Upticks in the weekly composite prices of Colorado, Oregon, Washington, and Nevada, as well as the mid-sized markets of Michigan, Massachusetts, and Illinois, outweighed declines in California and Arizona.  

 

The opening half of September has seen the U.S. Spot level off a bit just below its current annual peak of $1,404 per pound, documented in the final week of August. While the behavior of wholesale cannabis prices in the weeks ahead depend largely on the fall harvest, it must be noted that available historical sales data from both adult-use and medical markets indicates that demand tends to subside in the period from September through November. Still, as we point out in regard to Colorado, lower demand in the coming months could still be stronger relative to that observed in the same period in recent years.

The national volume-weighted price for flower to be sold to general consumers jumped this week as nearly every market in which adult-use sales are taking place saw rates for such product increase, with Alaska the only exception. Prices for medical flower slipped again this week, primarily on decreases in that sector of the market in California, as well as in Arizona, New Mexico, Rhode Island, and some other smaller medical-only markets. 

 

October Forward unchanged at $1,200 per pound. The average reported forward deal size was 47 pounds. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower was 58%, 26%, and 16% of forward arrangements, respectively. The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 43 pounds, 44 pounds, and 63 pounds, respectively.

 

At $1,200 per pound, the October Forward represents a discount of 13.6% relative to the current U.S. Spot Price of $1,389 per pound. The premium or discount for each Forward price, relative to the U.S. Spot Index, is illustrated in the table below.

Headlines From This Week’s Premium Report:

  • California

  • Number of Active Cultivation Licenses Up Over 25% From July After Changes to Provisional Licensing
  •  
  • Colorado

    July Sales Once Again Set New Record in State’s Legal System as Unprecedented Demand Drives Up Wholesale Prices

  • Oregon

  • Demand Reached New Heights in August But Illnesses and Deaths Linked to Vaping Could Dent Sales this Month
  •  
  • Washington

  • Upward Trend in Prices That Persisted from April Appears to be Leveling Off
  •  
  • Massachusetts

  • Corruption and Other Allegations Could Prevent About a Dozen Businesses Seeking Licenses from Entering State’s Growing Adult-Use Market

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Cannabis Benchmarks®, a division of New Leaf Data Services, LLC

13 September 2019.  Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved