December 27, 2019

CANADA CANNABIS SPOT INDEX — December 27, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published December 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$6.76 per gram this week, up 1.0% from last week’s C$6.69 per gram. This week’s price equates to US$2,336 per pound at the current exchange rate.

This week we examine the rising supply-demand gap in the Canadian cannabis market. With the onset of legalization over a year ago, data from Statistics Canada has shown increasing consumption in the recreational market, while that in the medical sector continues to slide. This makes simple sense, as Canadians look to self-medicate via purchasing in the adult-use market, rather than go through the formal process of getting a medical note to purchase more expensive medical products. We foresee this trend continuing as recreational cannabis becomes cheaper and more accessible. 

While the total monthly consumption of legal cannabis has been increasing steadily, as shown in the chart below, the legally licensed producers (LPs) continue to face intense competition from the robust illicit market. In September, Canada consumed a total of 14,000 kg from legal sources, or 467 kg/day. In Q3 2019, 5.2 million Canadians were estimated to be cannabis users. Given those numbers, Canadian cannabis consumers, on average, purchased 2.7 grams per person per month from legal sources. Overall, not an impressive number.

Source: Cannabis Benchmarks

Meanwhile, cannabis supply has been growing rapidly as every minor and major LP looked to build capacity to supply the market. According to data from Statistics Canada, total active cultivation area grew by nearly 400% over the first year of legalization to 19 million square feet. Cannabis Benchmarks estimates that total production peaked at 62,600 kg in July 2019. 

At full utilization, Canada’s LPs could grow over 100,000 kg/month. Since July, we estimate supply has slowed slightly as LPs began to manage production, stopped funding additional capacity, and wrote down inventory, thereby reducing the overall supply of product. 

Source: Cannabis Benchmarks

This significant gap between current supply and demand is leading to major inventory issues at the licensed producer site, with provincial distributors, and on the retailer’s shelf. After the first year of legal sales, finished and unfinished product inventory has ballooned to 28 months worth of current demand. This is a problem that will take some time to resolve.

Source: Cannabis Benchmarks

There may be some light at the end of the tunnel for the market; the oversupply has begun to moderate somewhat, which could lead to a more stable market towards the end of 2020. On the demand side, new regulations in Ontario could see a rapid build out in the physical retail locations across the country’s largest province by population, increasing accessibility. We project Ontario sales tripling from current levels by the end of 2020. Additionally, the new product categories such as vapes, edibles, beverages, and topicals available across Canada will lead to growing usage and an expanding consumer base.

On the supply side, where there is a clear overbuild of cultivation capacity, many major producers signalled in recent quarterly reports that they intend to scale back utilization of existing capacity and halt or delay further expansion to help balance the market. Adding to that, a handful of major LPs have also announced new discounted product lines to encourage customers to move away from the cheaper illegal market and obtain product from licensed sources. 

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

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

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

U.S. Cannabis Spot Index down 1.8% to $1,411 per pound.

 

The simple average (non-volume weighted) price decreased $26 to $1,619 per pound, with 68% of transactions (one standard deviation) in the $969 to $2,269 per pound range. The average reported deal size was nominally unchanged at 2.1 pounds. In grams, the Spot price was $3.11 and the simple average price was $3.57.

 

The relative frequency of trades for outdoor flower increased by1% this week. The relative frequency of deals for greenhouse product decreased by the same proportion, while that for transactions involving indoor flower was unchanged. 

 

Outdoor flower’s share of the total reported weight moved nationally expanded by 2% this week. The relative volume of warehouse product contracted by the same proportion, while that for greenhouse flower was stable.

The U.S. Spot Index declined by 1.8% this week to close 2019 at $1,411 per pound. Much of this year was marked in general by an upward trend in the national composite price. However, the U.S. Spot opened the year at $1,165 per pound and slid to its annual low of $1,066 per pound in the first week of April, after what available data shows was a strong 2018 outdoor harvest on the West Coast. 

 

However, record-setting demand in the country’s major adult-use markets this year, combined with reports that Oregon’s 2018 crop was of lower quality, pushed the U.S. Spot upward through the spring, summer, and into the autumn, when it peaked at $1,464 per pound in mid-November, the latest that such a milestone has been observed in the history of Cannabis Benchmarks price assessments, which began in 2015.   

 

Positive momentum in wholesale prices was moderated and reversed to close the year as the autumn harvest reached market, though the scope and quality of this year’s crop has yet to become fully apparent. Also notable in 2019 was the fracas around vaping-related illnesses and deaths, which resulted in regulatory action in several states to ban some or all vape cartridges. However, the official responses to the vape crisis did not appear to result in significant shifts in demand for flower, and in some cases sales of available extracted products actually increased in the face of partial bans.

The national volume-weighted price for flower to be sold to general consumers declined this week. Decreases in the adult-use sectors of California, Colorado, and Massachusetts, as well as in Alaska, outweighed increases in Oregon, Washington, and Nevada. The national price for medical flower also slid this week on decreases in that section of the market in California, Colorado, and Massachusetts, in addition to falling rates in the medical-only systems of Arizona, Illinois, Maine, and New Mexico, among others.

January 2020 Forward closes down $25 at $1,450 per pound.

 

The average reported forward deal size was nominally unchanged at 48 pounds. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower was 46%, 36%, and 18% of forward arrangements, respectively. The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 50 pounds, 43 pounds, and 50 pounds, respectively.

 

At $1,450 per pound, the January 2020 Forward represents a premium of 2.7% relative to the current U.S. Spot Price of $1,411 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

Legislative Analyst’s Office Recommends Eliminating Cultivation Tax, But Bill to that Effect Did Not Advance Earlier this Year

 

Colorado

Denver Minimum Wage Increase May Result in Small Increase in Labor Costs for Some Businesses in 2020

 

Washington

Officials Begin Rulemaking to Allow Smallest Producers to Expand Production Capacity

 

Arizona

November Sales Volume Again Sets New Record, Up by 33% YoY

 

Massachusetts

Adult-Use Sales Reach Almost $46 Million in November, a Record High for the Young Recreational Market

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

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

December 20, 2019

CANADA CANNABIS SPOT INDEX — December 20, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published December 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$6.69 per gram this week, up 4.8% from last week’s C$6.39 per gram. This week’s price equates to US$2,310 per pound at the current exchange rate.

This week we examine the potential cannabis market landscape in British Columbia (BC) in 2020. Yesterday, December 19, BC initiated Cannabis 2.0. The province’s Liquor Distribution Branch (LDB), the wholesale distributor of non-medical cannabis, received its first batch of products other than dry flower, pre-rolls, and oils – such as edibles, vaporizers, beverages, extracts, and topicals – and began to distribute them via both public and private channels. Consumers can expect to see products on legal retail store shelves in time for the holiday season. The LDB has registered more than 260 products, but only a fraction of them will be available initially.

We believe the addition and diversification of available products will drive more consumers to the growing number of stores across BC and away from the illegal market. The variety will also attract new customers willing to experiment with cannabis, but averse to smokeable products. Overall, we see sales expanding with the the introduction of these new products and the continuous opening of new stores each month, of which there are currently 88 in the pipeline that have been licensed and are expected to open in 2020.

Cannabis Benchmarks projections for retail cannabis sales in BC and the number of licensed storefronts projected to open each month through the end of 2020 are illustrated in the chart below.

Source: Statistics Canada, Cannabis Benchmarks

As of the last retail report from the Government of Canada, BC’s monthly sales for August and September averaged C$12M. This is likely a relatively small portion of all cannabis commerce taking place in the province compared to that captured by the illicit market, giving legal sales significant room to expand. We are now forecasting legal retail cannabis sales in BC to average C$24M per month in 2020, with 230 retail locations open by December 2020, generating C$28.5M in sales that month. This puts total 2020 BC cannabis sales at C$288M, of which the Cannabis 2.0 products are expected to make up 15% or C$43M.

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

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

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

U.S. Cannabis Spot Index down 0.3% to $1,437 per pound.

 

The simple average (non-volume weighted) price decreased $14 to $1,645 per pound, with 68% of transactions (one standard deviation) in the $972 to $2,318 per pound range. The average reported deal size was nominally unchanged at 2.1 pounds. In grams, the Spot price was $3.17 and the simple average price was $3.63.

 

The relative frequency of trades for indoor flower increased by almost 2% this week. The relative frequencies of deals for greenhouse and outdoor product each decreased by about 1%. 

 

Outdoor flower’s share of the total reported weight moved nationally contracted by 5% this week. The relative volumes of warehouse and greenhouse product expanded by 3% and 2%, respectively.

The U.S. Spot Index declined by 0.3% this week to settle at $1,437 per pound. The current month-to-date average price for December is down slightly compared to November’s mean U.S. composite rate. 

 

At this point, this observation bucks trends from the prior two years. In 2017, the monthly average U.S. Spot price rose by 0.4% from November to December, from $1,412 to $1,417 per pound. In 2018, the monthly average national composite rate rose by 5.7% in the same span, from $1,075 to $1,136 per pound. 

 

Next week’s U.S. Spot price would have to settle at above $1,483 per pound to exceed November’s average, which would constitute a week-over-week increase of at least 3.2%. This seems unlikely given recent trends. Upward price movement observed earlier this year in California, Colorado, and Oregon has leveled off and, in the case of the latter market, reversed recently. 

 

Meanwhile, although the opening of the adult-use market in Michigan and a reportedly smaller fall harvest in Washington this year is pushing up rates in those states, the sizeable markets of Nevada and Arizona are balancing that upward pressure on the U.S. Spot with downward-trending composite prices.

The national volume-weighted price for flower to be sold to general consumers was flat for the second straight week. Increases in California, Washington, and Massachusetts were counterbalanced by declines in Colorado, Oregon, and Nevada. 

 

The national price for medical flower declined this week on decreases in that section of the market in California and Colorado, in addition to falling rates in the medical-only systems of Illinois, Maine, and New Hampshire. 

January 2020 Forward unchanged at $1,475 per pound.

 

The average reported forward deal size was 48 pounds. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower was 46%, 36%, and 18% of forward arrangements, respectively. The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 50 pounds, 43 pounds, and 50 pounds, respectively.

 

At $1,475 per pound, the January 2020 Forward represents a premium of 2.7% relative to the current U.S. Spot Price of $1,437 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

Average Number of Product Batches Subject to Required Testing Monthly from September to December Up About 30% Compared to Prior Three-Month Period, While Failure Rates Are Down

 

Colorado

Increases in Average Market Rates Set by Revenue Department Mean Adult-Use Cultivators Will See Larger Tax Burden on Internal Transfers in Q1

 

Oregon

Total Sales Decline in November for 3rd Straight Month, to About $67.5 Million, But Sales of Extracts & Concentrates Increase for 2nd Consecutive Month

 

Washington

State Lawmakers Acknowledge Product Shortages May Occur With Opening of Adult-Use Market in 2020

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

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

December 13, 2019

CANADA CANNABIS SPOT INDEX — December 13, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published December 13, 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$6.39 per gram this week, down 1.5% from last week’s C$6.29 per gram. This week’s price equates to US$2,197 per pound at the current exchange rate.

This week, the government of Ontario announced that it would abandon the current lottery system for cannabis retail licenses and replace it with an open licensing system with no cap on the number of private cannabis stores. 

The Alcohol and Gaming Commission of Ontario (AGCO) issued a press release stating it “will begin accepting operator licence applications from prospective retailers on January 6, 2020, followed by store authorization applications on March 2, 2020. Store authorizations from this open application process are expected to be issued beginning in April, at an initial rate of approximately 20 per month.”  

Other notable facts from the announcement include:

  • Licensed producers (LPs) can apply to open a store at one of their facilities.


  • Retail operators may own a maximum of 10 cannabis stores until August 31, 2020, after which the cap will rise to 30 in September 2020 and 75 in September 2021.


  • Authorized cannabis stores can now offer click-and-collect services that allow customers to order and pay for products online for in-store pick-up.


  • The application does not require a pre-qualification step, as was the case in the lottery process. Applicants are no longer required to secure leases or provide a letter of credit for $250,000.

  

Ahead of this next round of retail stores opening, AGCO also stated that some of the 42 proposed cannabis stores granted a license in the second lottery have been authorized to open their doors this month. We expect all 42 to open ahead of the next batch of stores coming in April from the new open licensing process.

Our last Ontario sales forecast, issued in our November 22 report, did take into account the new rules discussed above, but today we make some small revisions based on the more definitive details that just recently came to light. Our current estimate reduces the number of stores opening initially to 20 per month from April through July, then increasing from August onward.

We are now forecasting retail cannabis sales in Ontario to average C$71M per month in 2020, with 310 retail locations open in December 2020, generating C$92M in sales that month. This puts total 2020 Ontario cannabis sales at C$854M.

Cannabis Benchmarks projections for retail cannabis sales in Ontario and the number of licensed storefronts projected to open each month through the end of 2020 are illustrated in the chart below, on the following page.

Source: Statistics Canada, Cannabis Benchmarks

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

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