August 14, 2020

CANADA CANNABIS SPOT INDEX — August 14, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published August 14, 2020
1

*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$6.23 per gram this week, down 1.6% from last week’s C$6.33 per gram. This week’s price equates to US$2,126 per pound at the current exchange rate.

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This week we provide an update on the growing stockpiles of cannabis held in federal and provincial storage facilities, and compare it to the inventory that is piling up on the balance sheets of two major licensed producers. 

 

Statistics Canada released data showing both unpackaged and packaged inventory for May 2020. The trend of expanding unpackaged inventory continued – as shown in the blue area below – but May saw packaged inventory buck the trend with a small decrease. Could this be the first sign of national production slowing? In our opinion, it is a bit too early to tell from this data alone.

Source: Statistics Canada, Cannabis Benchmarks

To get more insight on production and inventory, we turn to data reported this past week in quarterly earnings released by Canopy Growth and Tilray.

 

Both companies report the total kilograms harvested and sold each quarter. In the charts below, we show each company’s cannabis harvest volumes (solid line) and sales volumes reported for each quarter (dashed line). Both companies, but especially Canopy, experienced significant supply-demand disconnects through much of 2019. We can see cultivation peaked in mid-2019 and has been declining since for both companies, with reduced facility utilization and closures. For example, Canopy reported closing greenhouses in British Columbia in Q1 2020 to reduce the supply glut. Still, the supply-heavy imbalance has continued into 2020 for Canopy, while production and sales for Tilray have lined up more closely since the end of 2019. 

(Y axes represents kg equivalent in 1,000s)

Source: Canopy Growth Earnings, Tilray Earnings, Cannabis Benchmarks

Any product that is not sold is either put into inventory or written off (destroyed). The companies are not as forthcoming with that information, but we can get a glimpse by diving into their balance sheets. The balance sheets report inventory as a dollar value, rather than total volume stored; hence it is not a direct comparison to unpackaged/packaged inventory reported in kilograms by Statistics Canada. That being said, the trend in inventory growth should be very close.  

(Y axis represents kg equivalent in 1,000s)

Source: Canopy Growth Earnings, Tilray Earnings, Cannabis Benchmarks

The chart shows the two companies’ inventories growing at a similar pace to that reported by Statistics Canada in 2019, but that has not been the case in 2020. Our guess is that inventory volume has continued to grow, but dropping market prices are hitting the value of the inventory. With more inventory at a lower price, the inventory line items on the companies’ balance sheets appear to have flatlined.

For more data and analytics like this, subscribe to the Cannabis Market Insights report developed in collaboration Nasdaq. This in-depth monthly report provides exclusive data and analysis on the legal cannabis industry, focusing largely on the Canadian cannabis market, as well as the cannabis equities market in the U.S.

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

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

August 7, 2020

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

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

U.S. Cannabis Spot Index up 2.4% to $1,516 per pound.

 

The simple average (non-volume weighted) price increased $37 to $1,763 per pound, with 68% of transactions (one standard deviation) in the $944 to $2,581 per pound range. The average reported deal size was nominally unchanged at 2.2 pounds. In grams, the Spot price was $3.34 and the simple average price was $3.89.

 

The relative frequency of trades for indoor flower increased by 4% this week. The relative frequencies of transactions for greenhouse and outdoor product each decreased by 2%.  

 

The relative volume of warehouse product expanded by over 5%. The relative volumes of greenhouse and outdoor flower contracted by about 3% and 2%, respectively.

In our report for July 24, we noted that sales data out of numerous markets showed that the dramatic expansions of demand documented in many state-legal cannabis systems had cooled. While sales continued to climb in numerous cases, they did so by much smaller magnitudes than the increases observed in March, April, and May. Some markets, such as Oregon, even saw small month-over-month downturns in June after several months of unprecedented growth. 

 

However, the first July sales figures reported out of Massachusetts and Illinois this week show a resurgence in retail revenue in the adult-use sectors of both. Each market saw month-over-month sales spikes of around 30% in July, leading to new record revenue totals. It should be noted that in Illinois, the dramatic increase in sales may be related to expanding production beginning to catch up to demand. Illinois producers have been working rapidly since last year to build out new production capacity as the state moved quickly to begin adult-use sales this year, on top of experiencing strong growth in the medical sector.

 

Another notable development is freshly-reported May sales figures from Nevada show retail revenue bouncing back strongly that month, even as tourism to Las Vegas remained down by 96% compared to the same month last year. Curbside sales and pickup orders began to be allowed in Nevada in May, after retailers were limited to sales via delivery only from late March. It appears that keeping such sales channels open can make a big impact on the ability of legal cannabis sellers to meet consumer demand.

February 2021 Forward assessed at $1,350 per pound.

 

The average reported forward deal size was 30 pounds. The proportions of forward deals for outdoor, greenhouse, and indoor-grown flower were 42%, 33%, and 26% of forward arrangements, respectively. The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 31 pounds, 26 pounds, and 33 pounds, respectively.

 

At $1,400 per pound, the September Forward represents a discount of 7.6% relative to the current U.S. Spot Price of $1,516 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:

Nevada

Sales Bounce Back Strongly in May Even as Tourism Remains Almost Nonexistent

 

Massachusetts

July Adult-Use Sales Surge to New Record After Slow Restart in June

Previously Quarantined Vape Products May be Released for Sale Under New Order

Illinois

Adult-Use Revenues Jump 28% in July, Account for Almost 80% of June’s Combined Medical and Adult-Use Sales

 

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

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

CANADA CANNABIS SPOT INDEX — August 7, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published August 7, 2020
1

*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$6.33 per gram this week, up 0.7% from last week’s C$6.28 per gram. This week’s price equates to US$2,149 per pound at the current exchange rate.

Include your weekly wholesale transactions in our price assessment by joining our Price Contributor Network

If you have not already done so, we invite you to join our Price Contributor Network, where market participants anonymously submit wholesale transactions to be included in our weekly price assessments. It takes two minutes to join and two minutes to submit each week, and comes with loads of extra data and market intelligence.

This week we provide an update on store counts and sales. The Canadian cannabis industry is growing up with more than one thousand retail outlets now open across the country. This is an immense milestone, as there were only 361 stores open at the end of July 2019. With the increased physical retail presence, cannabis is becoming more visible and, presumably, more normalized in Canadian society.

 

To be exact, we count 1,012 licensed retailers, with an average monthly growth rate of 6% in 2020. This solid growth rate comes despite many store applications and openings being delayed due to COVID-19 shutdowns. The 50 store increase in July was distributed almost equally across Alberta, British Columbia, and Ontario. However, Alberta store counts seem to be hitting a saturation point, while Ontario store openings are taking off after a slow start.

Source: StatsCan, Cannabis Benchmarks

However, simply looking at licensed growing areas does not provide a good estimate of monthly production. The yields of indoor and outdoor operations can vary quite widely depending on the grower, plant genetics, climate conditions, and other factors. And, to add to that, not all of the licensed production capacity is currently online and operational. Some of it is newly licensed with no production occurring yet, while other licensed facilities that were in operation have been taken offline due to bad economics.

 

Outdoor growing is somewhat new in Canada, where the market to this point has been supplied primarily by indoor and greenhouse production. There are obvious benefits to both grow methods. Outdoor cultivation offers cheaper cannabis with the use of natural light and low-cost land, while growing in controlled indoor or greenhouse environments can produce a more consistent year-round product, but at significantly higher cost. Estimates from cultivators suggest cannabis grown outdoors could be produced for less than C$0.20/gram, while production costs for indoor and greenhouse growing range between C$0.80/gram and C$2.00/gram.

 

The expansion of outdoor production seems positive for the consumer, but raises both potential drawbacks and benefits for the supply side of the market. Most outdoor-grown cannabis is harvested in October, with some variability due to weather and different maturation periods for various varieties. With the Canadian cannabis market already facing a major supply glut, the seasonal surge of supply that comes with outdoor harvests could exacerbate that issue. 

 

The seasonality and variability of outdoor production may also result in increased price volatility, particularly in the initial seasons of outdoor growing when operations are honing their approaches and consumer demand for legal cannabis is still expanding. In legal cannabis markets in the western U.S., such as Oregon, bumper crops of outdoor cannabis in the autumns of 2017 and 2018 – the first two full years after the state’s legal adult-use market opened – caused dramatic wholesale price erosion. However, rates have recovered and stabilized beginning in the second half of 2019, partially due to growing consumer demand. 

 

Potential inconsistency in product quality and variabilities in production volume year-to-year due to weather, pests, and other factors may also make it difficult to fulfill fixed-volume provincial sales contracts. Again, though, as licensed producers dial in cultivation methods over the course of several seasons, some of that variability can be minimized.

 

Finally, it should be noted that significant amounts of outdoor-grown cannabis will likely be devoted to extraction and infused product manufacturing, as it is in legal U.S. markets. This should lessen the impact of Canada’s expanding outdoor production on the country’s oversupply of trimmed, smokable flower. It should also provide lower-cost raw material from which cannabis 2.0 products can be manufactured, presumably resulting in lower prices for consumers. While the current supply-demand imbalance is still worrisome and will likely continue to grow with expanded outdoor production, increased supply of more reasonably priced cannabis 2.0 products could also help grow demand by bringing more consumers into the legal market.

For more data and analytics like this, subscribe to the Cannabis Market Insights report developed in collaboration Nasdaq. This in-depth monthly report provides exclusive data and analysis on the legal cannabis industry, focusing largely on the Canadian cannabis market, as well as the cannabis equities market in the U.S.

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

07 August 2020 Copyright © 2020 New Leaf Data Services, LLC.  All rights reserved.