February 14, 2020

CANADA CANNABIS SPOT INDEX — February 14, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published February 14, 2020
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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..

The CCSI was assessed at C$6.31 per gram this week, down 1.3% from last week’s C$6.40 per gram. This week’s price equates to US$2,156 per pound at the current exchange rate.

 

The era of legal cannabis in Canada has been a bumpy ride for cannabis producers, consumers, and investors. The past year has been volatile and has seen collapsing valuations, high retail price points, dropping wholesale prices, lower-than-anticipated consumption, executive shake-ups, lay-offs, inventory write-downs, and corporate scandals. 

 

This week, the two largest Canadian licensed producers – Aurora and Canopy Growth – reported quarterly earnings for the period ending December 31, 2019. Rather than focusing on the financial results of the two mega-companies, we examine some of the fundamental metrics. In the latest reported quarter, both companies increased their production capacity and total sales. Aurora, which has been focusing on producing high-quality varieties and lowering total harvest costs, grew total quarterly output by 292% to 22,869 kg relative to the same quarter last year. 

 

Sales did not grow at the same pace, and in fact that has been one of the key contributors to the deteriorating financials and the decline in average net selling price. Sales from the same quarter last year have only grown by 36%, leading to excess supply going into inventory each month. Aurora’s cumulative inventory since legalization has ballooned by 68,657 kg. Based on their current sales rate, that is close to 22 months worth of supply.

 

Canopy Growth followed the same trend in at least the past five reported quarters. Canopy, the largest licensed producer in Canada, harvested 293% more than the same quarter last year, generating 29,900 kg. As with Aurora, sales grew at a significantly slower pace. Sales for the latest quarter reached 13,200 kg, or 31% higher than the same time last year. 

 

The gap between supply and sales has led to a massive inventory issue for Canopy, as well as lower selling prices. Supply in the latest quarter slowed to help ameliorate the inventory overhang, but Canopy’s cumulative product buildup since legalization commenced has grown by 79,600 kg. Based on their current sales rate, that is over 18 months worth of supply.

We recognize that 2020 sales will pick up with the opening of new stores, the launch of Cannabis 2.0 products, and increased consumer adoption, but will this be enough to balance the supply-demand fundamentals of this market? We expect to see similar results from many of the Canadian producers over the coming weeks, and potentially some inventory write-downs to help alleviate the rapid expansion in excess supply. As with other novel industries and commodities, cannabis in Canada is going through cycles of shortages and oversupply that should stabilize as the market matures.

Source: Cannabis Benchmarks, Aurora Cannabis and Canopy Growth quarterly earnings

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14 February 2020 Copyright © 2020 New Leaf Data Services, LLC.  All rights reserved

February 7, 2020

U.S. Cannabis Spot Index — February 7, 2020

U.S. Cannabis Spot Index — Published February 7, 2020

U.S. Cannabis Spot Index up 1.1% to $1,457 per pound.

 

The simple average (non-volume weighted) price increased $5 to $1,637 per pound, with 68% of transactions (one standard deviation) in the $905 to $2,370 per pound range. The average reported deal size decreased to 1.9 pounds. In grams, the Spot price was $3.21 and the simple average price was $3.61.

 

The relative frequency of trades for indoor flower increased by 8% this week. The relative frequency of deals for greenhouse and outdoor product both decreased, by 6% and 2%, respectively. 

 

Warehouse product’s share of the total reported weight moved nationally expanded by 6% this week. The relative volumes of greenhouse and outdoor flower each contracted by 3%.

The U.S. Spot Index rose by 1.1% this week to settle at $1,457 per pound. The national composite price has trended upward to start 2020, with this week’s rate representing an increase of 4.3% from the start of the year. This week’s U.S. Spot is also just $7 below 2019’s annual peak, which was documented in the week ending November 15. 

 

Overall wholesale flower prices in three of the country’s four largest markets – California, Colorado, and Oregon – have been fairly stable in recent weeks. Upward pressure on the national composite rate has come from Washington State and Nevada, as well as the newer adult-use systems in Massachusetts, Michigan, and Illinois. The opening of those states’ markets to general consumers has also pushed up prices for flower designated as medical, particularly in Illinois this week.

  

 

Looking ahead a few weeks, historical sales data out of established markets has shown that March is typically the month that sees the strongest demand in Q1, and sometimes for the first half of a year. Retailers in the major markets may look to bring in additional inventory in the coming weeks, which could result in upward pressure on wholesale prices in states where they have been fairly steady.

August Forward initially assessed at $1,455 per pound.

 

The average reported forward deal size was 42 pounds. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower was 47%, 36%, and 17% of forward arrangements, respectively. The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 48 pounds, 32 pounds, and 41 pounds, respectively.

 

At $1,475 per pound, the March Forward represents a premium of 1.2% relative to the current U.S. Spot Price of $1,457 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

Proportion of Total Product Batches Tested Constituted by Vapes & Extracts Reached Almost 39% in Q4 2019, Up from 31% in Q3 2018

Oregon

Official Data Shows About 30% of Flower and Trim is Going to Waste

Michigan

Adult-Use Sales Increased Significantly in January, Indicating Loosening Supply and More Retail Outlets Opening

 

Illinois

January Adult-Use Sales Top $39 Million as Wholesale Prices Climb; Rates for Medical Flower More Expensive than Adult-Use by About $340 Per Pound

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

7 February 2020.  Copyright © 2020 New Leaf Data Services, LLC.  All rights reserved

CANADA CANNABIS SPOT INDEX — February 7, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published February 7, 2020
image1

*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$6.40 per gram this week, up 0.2% from last week’s C$6.38 per gram. This week’s price equates to US$2,187 per pound at the current exchange rate.

 

This week we examine new data released by Statistics Canada. On January 31, officials published information on total cannabis cultivation area licensed in October 2019. Up until this report, only a single aggregate figure encompassing all grow types was reported. The previous reports showed that total production capacity climbed steadily through summer 2019.  

 

In the most recent report, for the first time, indoor and outdoor areas licensed for cannabis cultivation are reported separately. The data shows regulators have licensed roughly 13 million square feet of indoor and greenhouse production capacity, along with 19.4 million square feet for outdoor growing. 

The new data shows definitively for the first time that outdoor cultivation area is outpacing indoor grows. However, this does not necessarily translate into outdoor cannabis production generating a larger volume of flower and other plant material. Licensed cultivation areas, whether indoor or outdoor, might not be fully utilized at any given time. Also, indoor facilities can in some cases have a higher annual yield due to more dense plant spacing and the ability to achieve multiple harvests per year.

 

Regardless, outdoor operations should help Canada’s legal industry in its fight against the illicit markets that still provide an estimated 80% of the total amount of supply consumed nationally. Price has been one of the largest roadblocks to getting experienced consumers to switch to the legal markets. As we have seen in the Western U.S., outdoor-grown cannabis costs much less to produce; hence, it sells at a lower wholesale price point. Many Canadian licensed producers (LPs) at first lobbied against permitting outdoor operations, but have since jumped on the bandwagon of this growing method in the hopes of producing larger volumes at a very low cost. In addition to helping LPs become more price-competitive with illicit dealers, robust outdoor harvests can provide ample plant material that can be processed into extracts and infused products to service the growing Cannabis 2.0 industry. 

 

Although outdoor operations make complete sense based on the factors described above, it can be quite the gamble in Canada. As small and large LPs shift to increased outdoor production, we do expect downward pressure on wholesale prices, but also more volatility from seasonal supply fluctuations, as well as the general uncertainty regarding yield and product quality that naturally comes with growing outdoors.

Source: Cannabis Benchmarks

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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

7 February 2020 Copyright © 2020 New Leaf Data Services, LLC.  All rights reserved