November 27, 2019

CANADA CANNABIS SPOT INDEX — November 29, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published November 29, 2019
MidYearAnnualBundle_01

*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$6.37 per gram this week, down 0.8% from last week’s C$6.43 per gram. This week’s price equates to US$2,177 per pound at the current exchange rate.

 

This week we analyse Cannabis Benchmarks’ estimate of the total grams of cannabis sold in each province, along with how much an average consumer purchases each month. Since the inception of legal recreational cannabis markets, we have seen a steady increase in the total grams sold across each province. As we have established in past reports, this comes with a growing retail presence in provinces such as British Columbia and Ontario, as well as declining prices nationwide. 

The chart below is our estimate of the number of grams sold each month for different provinces and regions of the country. This view gives a side-by-side comparison of the growth and trends in the Canadian cannabis market.

 

Source: Cannabis Benchmarks

We then divided the totals in the chart above by the number of cannabis users, as reported by Statistics Canada, to reach an estimate of average per-person monthly purchase volume.

Source: Cannabis Benchmarks

Although the overall picture in both charts look similar in many respects, there are some differences and notable takeaways.

 

  1. Alberta has seen steady sales growth in conjunction with the exponential expansion in the number of retail stores. On average, each reported cannabis consumer purchased 3.5 grams of dry cannabis each month from the licensed market in August, the most recent month for which data is available.
  2. British Columbia’s legal cannabis market has seen relatively low purchasing levels. However, the data shows a big jump in sales in August, with the rapid increase in the number of physical stores and falling prices leading to licensed sellers becoming more competitive with the illicit market.
  3. The Prairie provinces show some of the highest purchase volumes per cannabis user, but that appears to have plateaued at around 3.5 grams per month beginning this spring.
  4. Ontario significantly lags below the national average in sales volume per cannabis consumer. Changes to rules around retail licenses, storage, and distribution processes will likely lead to accelerated consumption in Ontario in the future.
  5. Total sales volume in Quebec, and its growth trajectory, is comparable to that reported for Alberta, despite the former having double the population of the latter.
  6. The Maritime provinces have shown some of the strongest and most consistent per-consumer purchase volumes. The average cannabis user in these four eastern provinces has consistently bought between 2.5 and 3.5 grams per month from the legal market since October 2018.

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29 November 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

U.S. Cannabis Spot Index — November 29, 2019

U.S. Cannabis Spot Index — Published November 29, 2019

U.S. Cannabis Spot Index down 1.9% to $1,428 per pound.

 

The simple average (non-volume weighted) price decreased $3 to $1,658 per pound, with 68% of transactions (one standard deviation) in the $989 to $2,327 per pound range. The average reported deal size increased to 2.3 pounds. In grams, the Spot price was $3.15 and the simple average price was $3.66.

 

The relative frequency of trades for indoor flower decreased by 3% this week. The relative frequency of deals for outdoor product increased by the same proportion, while that for greenhouse flower was unchanged.

 

 

Outdoor product’s share of the total reported weight moved nationally expanded by 4% this week. The relative volumes of warehouse and greenhouse flower contracted by 3% and 1%, respectively.

The U.S. Spot Index declined by 1.9% this week to settle at $1,428 per pound. Remarkably, this is the first time since mid-March that the national composite price has fallen in two consecutive weeks. Spot rates fell in all three West Coast states, as well as in Nevada, with Colorado the only major market to see an uptick in its overall wholesale price this week. 

 

As we have called attention to in recent reports, the Thanksgiving holiday has become a time when it is now customary for retailers in states with legal adult-use cannabis to run sales and promotions, particularly on the Wednesday prior and the Friday subsequent to the holiday itself. Increased demand generated by retailers preparing for the holiday, on top of the relatively strong demand from consumers that has been recorded in many of the country’s largest legal cannabis markets this summer and autumn, may have contributed to the lack of a post-harvest erosion in wholesale prices this month.  

 

In previous years, the U.S. Spot Index has consistently fallen to its lowest point in November. This year, however, November’s monthly average Spot settled at $1,452 per pound, the highest observed so far in 2019 and up by 1.4% from October’s monthly mean of $1,432 per pound. This month’s average U.S. Spot price is also up by 35.1% year-over-year, compared to the rate of $1,075 per pound observed in November 2018.

The national volume-weighted price for flower to be sold to general consumers declined again this week on decreases in the adult-use sectors of the markets of California and Massachusetts, as well as downturns in Oregon, Washington State, and Nevada. 

 

The national price for medical flower also sank this week on declines in that section of the market in California and Colorado, in addition to decreasing prices in the medical-only systems of Arizona, Michigan, New Hampshire, New Mexico, and Rhode Island.

December Forward closes unchanged at $1,470 per pound.

 

The average reported forward deal size was 51 pounds. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower was 50%, 34%, and 16% of forward arrangements, respectively. The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 52 pounds, 43 pounds, and 59 pounds, respectively.

 

At $1,470 per pound, the December Forward represents a premium of 2.9% relative to the current U.S. Spot Price of $1,428 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:

  • Oregon

  • Officials Ban Vitamin E Acetate from Vape Products for Inhalation, But Flavored Vapes Allowed to be Sold Again Due to Judicial Ruling
  •  
  • Michigan

  • Regulators Require All Vape Products to be Tested for Vitamin E Acetate Before They Can be Sold, But No Labs Currently Qualified to Perform Such Screenings
  • Adult-Use Market to Open Sunday, But Only a Few Storefronts Licensed to Sell to Consumers
  •  
  • Massachusetts

  • Adult-Use Sales Slip for Second Straight Month in October as Full Ban on Vape Products Persists

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

29 November 2019.  Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

November 22, 2019

CANADA CANNABIS SPOT INDEX — November 22, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published November 22, 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$6.43 per gram this week, down 0.6% from last week’s C$6.47 per gram. This week’s price equates to US$2,198 per pound at the current exchange rate.

 

This week we analyse the sweeping changes about to occur in Ontario’s cannabis market. These changes are expected to be well received, both by consumers and the four major licensed producers (LPs) – Tilray, Aurora Cannabis, Canopy Growth, and Cronos – that reported big misses in their quarterly earnings last week. In their quarterly earnings calls last week, each company’s management team concluded that the lack of retail infrastructure in Ontario is constraining their sales. With Ontario home to 38% of the Canadian population, or 14.5 million people, increased and more convenient access is very important to the growth of this sector.

 

A number of recent announcements will fundamentally alter the trajectory of Ontario’s cannabis market. Below, we summarize the key changes and, taking those into account, introduce our new retail sales projections for Ontario through the end of 2020. 

 

  1. Next month we are expecting the introduction of cannabis 2.0 products, or cannabis-derived products such as vapes, beverages, edibles, and more. As we reported in our October 25 report, sales of these new products should expand the current cannabis user base by bringing in novelty buyers, as well as attracting buyers away from the illicit markets. Additionally, a portion of consumer spending will likely shift from dry flower to more premium priced alternative products, resulting in higher sales revenues. (Cannabis 2.0 will take place nationwide and is not limited only to Ontario.)

  2. On November 6 the Ontario Cannabis Store announced the click-and-collect system, which will allow existing private cannabis retailers to take orders online or by phone for in-store pickup. This service aims to reduce wait times for buyers and mimic the sales process of the illicit markets. Leafly, a well-known cannabis discovery site, already provides this service in Alberta. 

  3. The Ontario Cannabis Store (OCS) announced on November 19 the move to a privately-operated centralized distribution network. This will further remove the OCS from the cannabis sector by privatizing the storage and distribution centers and direct store deliveries. The goal is to have less government intervention to promote cost efficiencies and increase the legal consumer base by ultimately driving down prices closer to those observed in the black markets. 

  4. Finally, the biggest announcement was made yesterday, November 21, in regard to the potential for an open allocation process for issuing retail store licences next year. The current lottery system has been fraught and slow-moving, resulting in only 24 cannabis stores currently open across Ontario. The new process is intended to be more streamlined, with an online application and thorough background check. 

 

If all these changes transpire, we expect the number of stores to increase dramatically starting Q2 2020, eventually reaching 400 by the end of next year. As a result, we have updated our base case cannabis sales projections through the end of 2020.

Our analysis includes both a low and high case. The low case assumes the process for issuing retail store licenses stays on its current path, resulting in only 150 physical locations by the end of 2020. The high case assumes store growth to be rapid (or required), as outlined by the Canopy management team on their earnings call last week. They suggested 40 new stores each month to suck up current production levels and inventory to balance the market by late summer. In this scenario, we reach 505 operational stores by the end of 2020.

In our base case, we see Ontario sales expanding quickly and reaching C$97 million in total monthly retail sales for December 2020. This is almost triple the sales reported by Statistics Canada for August 2019.

Source: Cannabis Benchmarks

The linear relationship between number of stores and total sales does break down with the opening of new locations. As more stores are opened, consumers will have more access points and sales get distributed. Additionally, we factor in the sales growth from cannabis 2.0 by scaling in the additional spending that we anticipate will be generated by the new products. Ultimately, we forecast the boost in sales from cannabis 2.0 will account for 25% of the total spend in this market.

Source: Cannabis Benchmarks

These announced changes, if implemented effectively, efficiently, and in a timely manner, will likely put the Ontario cannabis market on the growth path envisioned originally by market participants.

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

22 November 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

U.S. Cannabis Spot Index — November 22, 2019

U.S. Cannabis Spot Index — Published November 22, 2019

U.S. Cannabis Spot Index down 0.5% to $1,456 per pound.

 

The simple average (non-volume weighted) price decreased $23 to $1,661 per pound, with 68% of transactions (one standard deviation) in the $988 to $2,334 per pound range. The average reported deal size decreased to 2.1 pounds. In grams, the Spot price was $3.21 and the simple average price was $3.66.

 

The relative frequency of trades for indoor flower decreased by 2% this week. The relative frequency of deals for outdoor product increased by the same proportion, while that for greenhouse flower was unchanged. 

 

Outdoor product’s share of the total reported weight moved nationally expanded by over 3% this week. The relative volume of warehouse flower contracted by the same proportion, while that for greenhouse product was unchanged.

The U.S. Spot Index declined by 0.5% this week to settle at $1,456 per pound. The decrease in the national composite price resulted in the U.S. Spot’s Trailing 4-Week Average turning downward for the first time since late August. Despite the harvest season, the trend lines of the Spot prices of three of the four largest markets remain on the rise, however, with Oregon’s the exception.

 

New data from Oregon officials reveals that the overall volume of this year’s fall crop exceeded those cut down in 2017 and 2018 by about 20%, although its quality and saleability remains to be determined as poor weather reportedly plagued many growers and resulted in mold issues. Still, the significant uptick in harvest volume in Oregon even in the face of less-than-ideal conditions in the state in late September and October suggests that large crops were also realized in California and Washington, where harvest-season weather was reportedly better in the areas of those states where outdoor cultivation is concentrated. 

 

Nevertheless, prices for outdoor flower were on the rise in all four of the major Western states this week, although the increase in the relative volume of such product on the national level was largely responsible for the small downturn in the U.S. Spot.

The national volume-weighted price for flower to be sold to general consumers declined this week on decreases in the adult-use sectors of the markets of California and Colorado, as well as downturns in Washington State and Nevada. 

 

The national price for medical flower rebounded this week on an uptick in that section of the market in California, in addition to increasing prices in the medical-only systems of Maine, New Hampshire, and New Mexico.

December Forward unchanged at $1,470 per pound.

 

The average reported forward deal size was 51 pounds. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower was 51%, 34%, and 15% of forward arrangements, respectively. The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 52 pounds, 43 pounds, and 60 pounds, respectively.

 

At $1,470 per pound, the December Forward represents a premium of 0.9% relative to the current U.S. Spot Price of $1,456 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

  • Taxes on Retailers and Cultivators to Increase in 2020
  •  
  • Colorado

    MED Urges Businesses to Immediately Stop Sale of Vape Products with Vitamin E Acetate, But Actual Deadline for Compliance is January 1, 2020

  • Oregon

  • Official Data for October Shows Sales of Concentrates & Extracts Increased Even as Ban on Flavored Vapes Was Implemented Mid-Month
  • Volume of Wet Plant Material Harvested in September & October This Year Reaches Roughly 3.6 Million Pounds, Up About 20% Compared to Same Months in 2017 & 2018
  •  
  • Washington

  • Regulators Implemented Ban on Vape Products With Vitamin E Acetate This Week
  •  
  • Michigan

  • Adult-Use Sales Can Start in Just Over Two Weeks, as Officials Announce 
  •  
  • Arizona

  • Almost 14,000 Pounds of Flower Sold to Patients in October, A New Record for the State’s Medical Market

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

22 November 2019.  Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

November 15, 2019

CANADA CANNABIS SPOT INDEX — November 15, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published November 15, 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$6.47 per gram this week, down 4.3% from last week’s C$6.76 per gram. This week’s price equates to US$2,219 per pound at the current exchange rate.

 

This week four major licensed producers (LPs) – Tilray, Aurora Cannabis, Canopy Growth, and Cronos – reported quarterly earnings that sent their stock prices diving while giving the market more insight into their operations, financials, and future plans. In a nutshell, the fundamentals are catching up to the inflated stock prices.

 

The consumption of cannabis is not keeping pace with the accelerated growth in kilograms being harvested. The main culprit that the management of all the companies reported was the substantial size of the illicit market due to the lack of a sufficient network of legal retail operations. Ontario was the market that most of these LPs were counting on due to the size of its population, but with only 24 operating stores sales have been disappointing. Canopy management reported that Ontario will be announcing revised plans in the very near future to grow the number of stores in 2020. Canopy’s CEO said that Ontario would likely need 40 stores per month starting in 2020 to help rebalance the market by late summer of 2020. Aurora also acknowledged the oversupply amd announced their future Aurora Sun facility in Alberta would now only be constructed to 238,000 square feet of production space, compared to an original target of 1.6 million square feet, to rationalize production and slash capital expenditures to conserve cash.

 

A major theme of the quarterly reports was the need to expand the network of retail sales and cut the wholesale cost of cannabis in order to expand the legal market, which currently represents less than 20% of the total projected market. The four LPs continue to show an increase in total cannabis produced each quarter as new facilities come online and efficiencies in production are gained. Both Aurora and Canopy reported producing over 40,000 kg over the three-month period. Each company currently produces enough each month to fulfill all of Canada’s current legal recreational cannabis demand – a staggering fact when Health Canada has licensed over 120 producers nationwide.

Source: Cannabis Benchmarks, Company MD&A reports

With production hitting new records, total cannabis sales from LPs have not kept pace. Both Aurora and Canopy sold approximately 30% of their harvests, meaning that the rest went into inventory. As inventory levels build and age, the inventory degrades and leads to LPs writing off bad inventory. Canopy Growth reported a C$15.9 million inventory write-down this past quarter.

Source: Cannabis Benchmarks, Company MD&A reports

In order to compete with the lower priced illicit market, the large LPs have begun cutting their wholesale prices. This quarter we saw average selling prices from all the LPs continuing to decrease, with Cronos and Tilray showing the largest quarter-on-quarter drop. All the LPs referenced a changing product mix this quarter, which simply translates to introducing new budget brands selling at lower price points.

Source: Cannabis Benchmarks, Company MD&A reports

One of the bright spots in the cannabis sector has been the drop in production costs. For the current quarter, we see that three of the LPs reported decreasing costs. Aurora reported that it had cut the cash cost per gram to just above C$1. The lower wholesale prices will be partially mitigated by these cost efficiencies, but margins will still be under pressure. 

Source: Cannabis Benchmarks, Company MD&A reports

For more data and analytics like this, please sign up to become a BETA client of our market fundamentals dashboard. Please click the link below to register and we will email you directly as our platform becomes available.

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

15 November 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved