October 25, 2019

CANADA CANNABIS SPOT INDEX — October 25, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published October 25, 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$6.94 per gram this week, up 1.6% from last week’s C$6.83 per gram. This week’s price equates to US$2,406 per pound at the current exchange rate.

 

This week we review new provincial sales data released by the Canadian government and estimate the sales impact of the class of cannabis products that will hit store shelves by the end of the year. 


To start, we acknowledge August retail cannabis sales, which jumped significantly and corresponded with the forecast we formulated in our report for October 4. We projected C$127M in sales in August, with the actual total coming in at C$126M. In that report, we estimated that sales for October would increase to C$144M.

Nationwide sales rose by C$23M from July to August, with British Columbia (BC) seeing the most growth of any province. Even with sales in BC rising by 216% month-on-month to C$11.9M in August, the overall level of sales has been disappointing for a province known for its “BC Bud.” Two main factors continue to plague this market: the robust, entrenched illicit market and the lack of legal retail store fronts. We estimate the total number of brick and mortar stores open currently in BC at 95.

With sales significantly lower than most expected for the first full year of cannabis legalization, the question many are asking is how sales will look next year with the introduction of new types of cannabis products. Provincial sales levels to this point have been highly correlated with the total number of stores opened, but going forward we expect there to be a large uptick in total monthly sales per store as vapes, edibles, topical creams, and beverages become fully available.  

 

After surveying market participants and deliberating internally, Cannabis Benchmarks® has developed a summary of the factors that will structurally influence sales after cannabis 2.0 products become available:

 

  1. Consumer spending will shift from dry flower to more premium priced alternative products, resulting in higher sales.

  2. The cannabis consumer base will expand. New products with the capability to more accurately control dosage will attract potential consumers opposed or unable to smoke as an ingestion method. 

  3. A wider variety of products and their attendant consumption methods has the potential to attract casual novelty buyers on top of regular consumers, further expanding the country’s cannabis consumer base.

  4. Consumers that to this point have persisted in purchasing from the illicit market could be drawn into licensed retailers by the prospect of new products unavailable from illegal sellers. Such migration could also result in those consumers buying flower from licensed sources, as they will already be at the (legal) point of purchase. 

 

In sum, we expect the consumer base will expand and the average purchase will increase, resulting in increased retail sales per store.  

 

The introduction of these new products will surely be a positive for the industry. Our current estimates show average daily sales per store to be around C$25,000. With the addition of new product types, we expect that to increase by an average of 30% throughout 2020 to approximately C$32,000 in daily sales per store. Sales projections would have been even higher, but we anticipate a drop in dry flower prices as licensed producers such as HEXO lower their rates to compete with the illegal market.  

 

As mentioned above, our current retail sales forecast for the 561 stores in Canada is C$144M for October, which is C$1.72B annualized. With the addition of these new products, the same 561 stores at 30% more sales should generate C$187M monthly, or C$2.25B annualized. We expect the number of sales to substantially increase throughout 2020 in provinces such as Ontario, Quebec, and British Columbia, and with that we anticipate overall Canadian retail sales to follow.

 

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*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

25 October 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

U.S. Cannabis Spot Index — October 25, 2019

U.S. Cannabis Spot Index — Published October 25, 2019

U.S. Cannabis Spot Index up 2.0% to $1,459 per pound.

 

The simple average (non-volume weighted) price increased $49 to $1,663 per pound, with 68% of transactions (one standard deviation) in the $969 to $2,356 per pound range. The average reported deal size was nominally unchanged at 2.0 pounds. In grams, the Spot price was $3.22 and the simple average price was $3.67.

 

The relative frequency of trades for indoor flower increased by 1% this week. The relative frequency of deals for outdoor product decreased by the same proportion, while that for greenhouse flower was unchanged. Greenhouse product’s share of the total documented weight moved nationally expanded by 1% this week. The relative volume of outdoor flower contracted by the same proportion, while that for warehouse product was stable.

The U.S. Spot Index rose by 2% this week to settle at $1,459 per pound. This is the fifth time in the last six weeks that the national composite price has established a new annual peak. As we noted last week, at this time last year the U.S. Spot began a noticeable descent and eventually reached its annual trough in the second week of November. The national monthly average composite rate for November has typically been the lowest observed in any given year since Cannabis Benchmarks® began assessing prices in 2015. 

 

In addition to the current behavior of national wholesale cannabis prices, several factors indicate that this year’s harvest season could see significant disruption in historical trends. Growing conditions in the Pacific Northwest states have not been favorable this year. As we expand upon in the commentary for Oregon, one veteran cultivator in that state expects the autumn harvest to have a “subtle” impact on prices. Apprehensions about Colorado’s largest grower losing a significant portion of its outdoor crop to an early freeze could amplify the existing upward trend in prices in that state. This despite the possibility that the loss represents a relatively small proportion of the state’s total production, as we discuss below, although uncertainty on that front will not be clarified until official data is available next year. 

 

Meanwhile, Spot rates in the mid-sized markets of Michigan, Massachusetts, and Illinois continue to rise, providing positive pressure to the U.S. Spot not present in prior years in such a sustained manner.

The national volume-weighted price for flower to be sold to general consumers rose this week. Apart from Nevada, every state market in which adult-use sales are currently taking place saw an uptick in prices for such flower, although rates in Massachusetts’ adult-use sector were flat this week. 

 

The national price for medical flower declined slightly this week, due virtually entirely to a downturn in that portion of California’s market.

November Forward closes up $100 to $1,425 per pound. The average reported forward deal size declined to 50 pounds. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower was 49%, 35%, and 16% of forward arrangements, respectively. The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 53 pounds, 39 pounds, and 61 pounds, respectively.

 

At $1,425 per pound, the November Forward represents a discount of 2.3% relative to the current U.S. Spot Price of $1,459 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

  • Price for Outdoor Flower Ascends to New Annual Peak this Week; Rates for Indoor Product Down 7.5% in Last Two Weeks
  •  
  • Colorado

    How Much of Colorado’s Statewide Production Was Actually Impacted by Recent Partial Crop Loss at Los Sueños Farms?

  • Oregon

  • Veteran Outdoor Grower in Southern Oregon Expects This Year’s Fall Harvest to Have a “Subtle” Influence on Wholesale Prices
  •  
  • Michigan

  • Official Sales Data for Q2 Indicates Available Supply Increased in the Period, but Not Enough to Prevent Price Rises
  •  
  • Illinois

  • Local Governments of Chicago and Aurora Approve Regulations for Adult-Use Retailers

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

25 October 2019.  Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

October 18, 2019

CANADA CANNABIS SPOT INDEX — October 18, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published October 18, 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$6.83 per gram this week, up 0.3% from last week’s C$6.81 per gram. This week’s price equates to US$2,349 per pound at the current exchange rate.

 

This week marks the one year anniversary of cannabis being legalized in Canada. Year one was quite volatile in a variety of ways; virtually every aspect of the market experienced ups and downs. Some examples include: 

 

  • A shortage of supply followed by a surplus;

  • Too much demand, then not enough demand;

  • High stock prices crashed downward;

  • Elevated cannabis commodity prices were followed by a decrease in rates;

  • Expensive retail prices eroding to lower ones.

 

The preceding worked to dampen the overweening enthusiasm present in the run up to legalization and shortly after its outset. As a result, Canadian cannabis businesses experienced additional volatility in another sphere, as capital that had previously been easy to access is no longer as freely forthcoming. 


In what follows, we expand on the above summary by highlighting the key numbers that we have been collecting and modelling in our first year of reporting on Canada’s legal cannabis market. 

 

PRICES

 

The assessed wholesale price over the first year of legal recreational sales – the Canada Cannabis Spot Index – averaged C$7.05 per gram (this includes C$1.13 of excise duties paid to the federal and provincial governments). Prices started out strong with reported supply shortages, but stabilized by March 2019. Ultimately, weekly rates ranged between C$6.04 and C$8.27 per gram in the preceding year. 

 

The average retail price per gram over the same period was C$10.01 (sales include dry flower sold in varying quantities, and oils).

 

SUPPLY

 

According to data from Health Canada, 241 corporate entities hold a cultivation, processing, or sales license under Canada’s Cannabis Act. The race to supply this emerging market has resulted in cultivation area growing by 342% to 16.7 million square feet from October 2018 to June 2019. 

 

The net production from these facilities grew at an equivalent rate. Cannabis Benchmarks® estimates total Canadian monthly cannabis supply peaked in June at 62,671 kg. More supply is expected to come to market as facilities already under construction come online in the last quarter of 2019 and throughout 2020.

 

DEMAND

 

4.9 million people over the age of 15, or 16.1% of the Canadian population, reported cannabis use during Q2 2019. (Of course, only those over 18 or 19 years of age may make purchases at licensed retail outlets, depending on the province.) Our estimates show that only 15% of cannabis consumed in Canada in the last year was purchased from a legal source, namely one of the 561 operational cannabis stores or one of the provincially run online marketplaces. 

 

As access became easier and consumers more educated, daily Canadian cannabis sales grew from C$1.8M to C$4.6M over the course of the year, a 260% increase. Cannabis Benchmarks® estimates monthly legal consumption more than doubled throughout this period with October 2019 sales modelled to be 15,859 kg across medical and recreational markets.

 

INVENTORY

 

One of the most significant issues looming over Canada’s legal cannabis market is the large gap between supply and demand. This has contributed to a massive build up of inventory equating to more than 26 months worth of current demand, according to data from Health Canada. Some licensed producers are now looking to drop prices in order to be more competitive with the illicit market and move legal supplies, while others might be forced to write down unsellable inventory.

Over the coming months, we will continue to build out our data on current and projected supply and demand to give our readers a better perspective on market fundamentals. We have already had an overwhelming number of readers sign up to BETA test our fundamentals dashboard. If you have not signed up yet, please click the link below to register and we will email you directly as our platform becomes available.

*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..

Are you a licensed market participant in the U.S. or Canada? 

Do you support wholesale market transparency?

Become a member of our Price Contributor Network and receive discounted pricing and exclusive analysis!

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

18 October 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

U.S. Cannabis Spot Index — October 18, 2019

U.S. Cannabis Spot Index — Published October 18, 2019

U.S. Cannabis Spot Index up 1.0% to $1,430 per pound.

 

The simple average (non-volume weighted) price decreased $11 to $1,614 per pound, with 68% of transactions (one standard deviation) in the $941 to $2,287 per pound range. The average reported deal size increased to 2.0 pounds. In grams, the Spot price was $3.15 and the simple average price was $3.56.

 

The relative frequency of trades for each grow type was very stable compared to last week, with only a marginal decrease in that for deals for indoor flower discernible in the chart below. Greenhouse product’s share of the total documented weight moved nationally contracted by 2% this week. The relative volumes of warehouse and outdoor product each expanded by 1%.

 

 

The U.S. Spot Index rose by 1% this week to settle at $1,430 per pound. This week’s national composite price represents a new year-to-date high. This is the latest in the year that such a milestone has been established in the history of our reporting, a phenomenon that is especially notable as the autumn harvest has begun to be cut down and make its way to market. 

 

New sales data out of Colorado shows that unprecedented demand in the country’s second largest legal cannabis market persisted through August. Official information and reports from market participants in the West Coast states indicate that similar conditions are occurring in those markets as well. Meanwhile, the sizeable medical-only markets of Arizona and Illinois are also seeing significant year-over-year demand growth and are contributing to upward pressure on national wholesale prices.

 

This week last year was the final one before the U.S. Spot began descending notably as the fall crop came in. In 2018, the national composite price declined by 3.4% from $1,084 per pound in the week ending October 19 to $1,047 per pound in the week ending November 9, the annual trough for last year. However, elevated demand this year, combined with impacts from bans on certain vaping products in Oregon and Washington, which we discuss in more detail in the Spot Index commentary for those states, represent novel sources of upward pressure to wholesale cannabis prices that could disrupt customary seasonal trends.

The national volume-weighted price for flower to be sold to general consumers ticked down slightly as declines in that sector of the market in California, as well as in Nevada, outweighed increases in Colorado and Oregon. The national price for medical flower jumped on increases in that portion of California’s market, in addition to the rises in the medical-only markets of Arizona, Illinois, Maine, New Mexico, Rhode Island, and Vermont.

 

November Forward up $75 to $1,325 per pound.

 

The average reported forward deal size was nominally unchanged at 57 pounds. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower was 53%, 32%, and 15% of forward arrangements, respectively. The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 62 pounds, 39 pounds, and 70 pounds, respectively.

 

The entirety of the six-month Implied Forward Curve has been assessed upward this week. As we discuss in this week’s report, there apprehensions about poor weather impacting the harvest in the Pacific Northwest states. Additionally, in Colorado, Marijuana Business Daily reported late this week that an early-season snow storm caused the loss of roughly half the crop of the state’s largest outdoor grower, Los Sueños Farms in Pueblo. The loss could compound market conditions in which unprecedented demand has already been pushing up wholesale prices since the outset of summer. In California, even though growing conditions have reportedly been favorable, strong demand may be sufficient to absorb the production of the state’s licensed cultivators. Finally, adult-use sales in Michigan and Illinois – expected to begin as early as late this year and at the start of next year, respectively –  will add new, expanded demand to markets already seeing supply pressure. 

 

 

At $1,325 per pound, the November Forward represents a discount of 7.4% relative to the current U.S. Spot Price of $1,430 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

  • Growing Conditions Appear Favorable for a Robust Harvest, but Strong Demand Could Absorb Increased Supply
  •  
  • Colorado

    Retail Sales Again Set New Records in August, as Wide-Ranging Product Recall and Reports of Significant Loss by State’s Largest Grower Could Crimp Supply

  • Oregon

  • Market Participants Say Flavored Vape Ban Could Increase Demand for Cannabis Plant Material for Terpene Extraction
  •  
  • Washington

  • Outdoor Flower Prices Rise to New Year-to-Date High but Remain Depressed Relative to Other Major Markets
  •  
  • Arizona

  • Sales to Patients Subside in September After Reaching Record High in August

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

18 October 2019.  Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

October 11, 2019

CANADA CANNABIS SPOT INDEX — October 11, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published October 11, 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$6.81 per gram this week, down 3.7% from last week’s C$7.07 per gram. This week’s price equates to US$2,323 per pound at the current exchange rate.

 

This week we examine the state of the medical cannabis market since adult-use legalization almost a year ago. According to data from Health Canada, there is a very noticeable downward trend in the purchase of cannabis for medical purposes. We do not necessarily believe that use of cannabis for medical purposes is diminishing. Instead, those that may have previously registered as patients are likely turning to the recreational market for their product for some very apparent reasons.

Source: Cannabis Benchmarks, Health Canada

We have routinely mentioned the three “Ps” – product, price, and proximity; once again, these factors can help explain the downward slide in medical cannabis purchasing shown in the chart above.

 

Product
The products available through recreational channels are cultivated by the same licensed producers (LPs) in the same locations; hence they are a fungible commodity. 

 

Proximity

Patients will continue to change the way they access their cannabis for medical usage as more retail store locations open and make product more accessible. This will be driven by provinces such as Ontario and Quebec, which are currently home to 60% of the total population but have a severe shortage of retail stores. 

 

The last reported figures for June 2019 show these two provinces consumed 50% of medical dry cannabis (780 kg), but only had 38 licensed retailers, or 13% of the total number of Canadian stores at that time. Over the past four months, an additional 12 stores opened in those two provinces, while 253 stores opened in other provinces.

Source: Cannabis Benchmarks

Price

In our view, price is one of the biggest reasons patients are turning to the recreational markets for their cannabis. We reviewed the average net selling prices contained in recent quarterly reports from some of the top producers and found that there is a large discrepancy in the average selling prices of recreational and medical cannabis, despite their being fungible, as we noted above. 

 

Below, on the following page, is a table showing the average net selling prices from Canopy, Organigram, and Aurora over the past three quarters. There is a massive spread between the price per gram of recreational and medical cannabis. Additionally, this gap continues to grow as prices drop in the recreational market. 

Source: Cannabis Benchmarks, Company Quarterly MD&A

With the most recent quarterly reports, the average premium for medical cannabis grew for all three of the LPs we analyzed. Aurora topped the list by commanding a 66% premium for their medical cannabis for their fiscal Q4 2019 ending on May 31.

Over the coming months, we expect medical sales to continue to trend lower as recreational market prices continue to decline on increasing supply and inventory levels, and as more stores and product types become available in the adult-use market. If you would like to access more data like this, including proprietary Cannabis Benchmarks data, please sign up to be a BETA tester of our new fundamentals data platform for the Canadian market. Click the link below to register.

*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..

Are you a licensed market participant in the U.S. or Canada? 

Do you support wholesale market transparency?

Become a member of our Price Contributor Network and receive discounted pricing and exclusive analysis!

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

11 October 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved