March 25, 2022

U.S. Cannabis Spot Index — March 25, 2022

U.S. Cannabis Spot Index — Published March 25, 2022

The U.S. Cannabis Spot Index increased 2.7% to $1,242 per pound.

 

The simple average (non-volume weighted) price increased $27 to $1,523 per pound, with 68% of transactions (one standard deviation) in the $684 to $2,362 per pound range. The average reported deal size declined to 2.4 pounds. In grams, the Spot price was $2.74 and the simple average price was $3.36.

 

The relative frequency of transactions for indoor flower rose 3%, while greenhouse deal frequency fell 2% and outdoor deal frequency was unchanged.  

                  

 

The relative volume of indoor flower rose 2%; that of greenhouse flower fell 3%, while that of outdoor flower was unchanged. 

 

Outdoor flower spot prices in legacy states – Colorado, California, Oregon, and Washington – are now within a $24 price range, from just below $500 to about $520 per pound, with the average price of outdoor product among legacy states sitting at about $506 per pound this week. Price convergence in these markets has picked up as pandemic demand has receded and supply has grown. There are economic reasons for price convergence and one of them is known as LOOP – the law of one price – which, as with other economic “laws,” sometimes works in real markets. 

 

Growers around the country are often shocked at prices in states not their own. Californians are surprised that pounds of flower in Massachusetts are over $2,400, and were over $3,500 in November 2021, or that Illinois prices are over $3,400 per pound when their own product prices are sinking, despite being essentially the same product. Colorado and other western growers dream of selling into expensive East Coast markets one day, where pounds routinely go for $3,000 or more. Michigan growers are seeing prices fall on an almost daily basis, while prices in neighboring Illinois are nearly triple those in Michigan. 

 

The theory or law of one price (LOOP) says different prices for the same commodity must converge via arbitrage. Buying cannabis in California and selling it in Illinois is arbitrage. All other elements being equal, if enough California cannabis ends up in Illinois, Illinois cannabis prices will fall toward those of California even as California prices rise on Illinois demand. Ultimately, the theory of one price and its resolution, arbitrage, collapse price differentials in efficient markets.

 

In the real world, federal cannabis prohibition denies the theory of one price, keeping price differentials in place by law, thus creating artificially segregated markets where the rules of economics and finance are denied by creating an unresolvable arbitrage. It is not that California cannabis does not end up in Illinois, it’s that current law prevents legal arbitrage, thereby denying the law of one price.

 

In the U.S., LOOP is thus defeated by federal law, which has erected what one might consider trade barriers. Trade barriers are, strictly speaking, rules put in place to protect one economy from another economy’s arbitrage attempts. Typically, trade barriers are between nations and, in the protected country, prevent “dumping” products on nations with nascent industries or economic inefficiencies that keep prices artificially high. 

 

 

While not intentional, federal cannabis prohibition is a trade barrier, keeping prices higher in some states that may be lacking efficiency in production for various reasons. For example, California has the climate and experience to produce vast amounts of cannabis, while Illinois cannabis growing is constrained by multiple factors – including climate, rules against lower-cost outdoor cultivation, and an oligopoly on production – which keep prices artificially high. It is only through federal prohibition that enormous cannabis price differentials exist. Thus, when federal deregulation happens, arbitrage will take place and cannabis prices will find equilibrium.

 

April 2022 Implied Forward closes unchanged at $1,225 per pound.

 

The average reported forward deal size increased to 79 pounds. The proportions of forward deals for outdoor, greenhouse, and indoor-grown flower were unchanged at 33%, 52%, and 15% of forward arrangements, respectively.

 

The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 94 pounds, 74 pounds, and 61 pounds, respectively.

 

 

At $1,225 per pound, the April 2022 Implied Forward represents a discount of 1.4% relative to the current U.S. Spot Price of $1,242 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

Interstate Commerce Bill May Draw Federal Fire

New Mexico

Eastern NM Retailer Has High Hopes for Adult Use Market

Illinois

Cannabis Licensing: Two Steps Forward, One Step Back

Massachusetts

Retail Ounce Prices Fall for 4th Month

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

25 March 2022.  Copyright © 2022 New Leaf Data Services, LLC.  All rights reserved

CANADA CANNABIS SPOT INDEX — March 25, 2022

CANADA CANNABIS SPOT INDEX (CCSI) 

Week Ending March 25, 2022
CCSI image 1 2022-03-25

*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$5.22 per gram this week, up 1.1% from last week’s C$5.17 per gram. This week’s price equates to US$1,884 per pound at the current exchange rate.

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Statistics Canada recently released retail sales data for January 2022, showing nationwide legal cannabis sales dropping from the previous month. Sales in January slid to C$347.2M. The month-on-month decrease of C$7.5M, or 2.1%, continues the trend of a flattening market, which commenced last summer. Monthly sales have averaged C$354M over the last six months for which data is available.

Also noteworthy in the latest report is the strong downward revision of the December 2021 sales figure. In last month’s retail sales report, December sales were estimated at C$382.4M. The latest release removed C$27.6M from the December sales estimate, bringing it C$354.8M. Looking at the same data on a per day basis paints a picture of softening demand in Canada’s legal cannabis industry, where sales have been sliding each month from September 2021 (C$11.8M / day) through January 2022 (C$11.2M / day). 

 

Trends in mature, state-legal U.S. cannabis markets have consistently shown that October-November and January-February are typically periods of relatively weaker sales, providing hope that Canadian legal cannabis demand could pick up again come March, when a significant month-on-month boost is frequently observed. In other words, the current Canadian sales slump may be due to a maturing market leaving behind the consistent growth of its early stages and settling into seasonal sales trends. 

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

25 March 2022 Copyright © 2022 New Leaf Data Services, LLC.  All rights reserved

March 18, 2022

U.S. Cannabis Spot Index — March 18, 2022

U.S. Cannabis Spot Index — Published March 18, 2022

The U.S. Cannabis Spot Index decreased 1.9% to $1,209 per pound.

 

The simple average (non-volume weighted) price increased $2 to $1,496 per pound, with 68% of transactions (one standard deviation) in the $662 to $2,331 per pound range. The average reported deal size was nominally unchanged at 2.5 pounds. In grams, the Spot price was $2.67 and the simple average price was $3.30.

 

The relative frequency of transactions for indoor flower fell 2%, while greenhouse deal frequency rose 1%, as did outdoor transaction frequency.                   

 

 

The relative volume of indoor flower fell 2%; that of greenhouse flower rose 1% and that of outdoor flower rose 2%. 

 

U.S. Spot price fell about $23 this week, dragged lower by not just legacy markets, but also by younger markets in high population states. In fact, Oregon’s Spot jumped $22 this week, making for a nearly $90 gain over the past two weeks due to seasonal demand factors. Oregon prices are still technically in a downtrend, however, with the 10-week average weekly loss at -$15.24. 

 

Washington State gained nearly $6.50 per pound, with a narrowing 10-week average weekly loss of -$8.28. California’s Spot slipped about $11.50, even as the 10-week average loss narrowed to just under $7 per pound. Colorado’s Spot lost almost $33 per pound as the 10-week average loss jumped to nearly $8.50 per pound. 

 

Illinois’ Spot fell about $20 per pound and has shed over $260 per pound in the past three weeks, bringing the 10-week average weekly loss to -$32 per pound. Michigan’s Spot has been pummeled over the past 10 weeks, falling over $750 per pound and pushing the 10-week average weekly loss up over $75 per pound. Massachusetts’ Spot has also come under pressure in the past eight weeks, losing over $900 per pound with large volume deals at lower prices pulling down prices. The 10-week average weekly loss in Massachusetts is up over $94. 

 

While legacy market prices have mostly been grinding lower since summer 2021 in a post-pandemic shake-out, newer markets in high population states have undergone rapid transformations, with prices over $4,000 per pound now firmly in the rear view. When new states start meeting consumer demand, prices tend to drop from scarcity highs to more sustainable levels. Some newer markets – Michigan, for example – bury scarcity under a flurry of new licensees, sometimes uncapped licensing, and new cannabis entrepreneurs’ quick uptake of production and distribution methods honed in legacy states. The new cannabis market cycle appears to be scarcity, abundance, followed by overabundance and ultimately stasis, where demand is met with ample production, but not oversupply.

 

Legacy states have learned hard lessons in basic economics such that oversupply has become a more or less permanent condition. California and Oregon are attempting to address what have been called “failing cannabis markets” through taxation changes that directly affect cannabis businesses’ bottom lines and more sophisticated schemes like license moratoriums, respectively. For more on Oregon’s license moratorium, see our interview in the state’s Spot section below.

 

April 2022 Implied Forward unchanged at $1,225 per pound.

 

The average reported forward deal size was nominally unchanged at 77 pounds. The proportions of forward deals for outdoor, greenhouse, and indoor-grown flower were unchanged at 33%, 52%, and 15% of forward arrangements, respectively.

 

The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 91 pounds, 72 pounds, and 61 pounds, respectively.

 

 

At $1,225 per pound, the April 2022 Implied Forward represents a premium of 1.3% relative to the current U.S. Spot Price of $1,209 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

License Moratorium Not About Price, It’s About New Blood

Arizona

January ‘22 Cannabis Sales Drop 9.6% M-o-M

Michigan

Sales Up Even as Cannabis Prices are Down

Massachusetts

Adult Use Cannabis Sales Defy Price Rout Headline

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

18 March 2022.  Copyright © 2022 New Leaf Data Services, LLC.  All rights reserved

CANADA CANNABIS SPOT INDEX — March 18, 2022

CANADA CANNABIS SPOT INDEX (CCSI) 

Week Ending March 18, 2022
CCSI image 1 2022-03-18

*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$5.17 per gram this week, down 0.4% from last week’s C$5.19 per gram. This week’s price equates to US$1,845 per pound at the current exchange rate.

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

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As we reported last week, Alberta’s cannabis industry went through a major transformation that allows licensed private retailers in the province the ability to establish online stores to sell their products direct-to-consumer. This week we focus on British Columbia (BC), where the government opened online sales back in August 2020. The one caveat: customers were required to pick up their purchases in-person. 

 


That changed on July 15 last year, when licensed cannabis retailers in BC were authorized to deliver recreational cannabis products directly to consumers. The BC government saw this as an avenue to support BC’s legal cannabis industry and continue to push out the illegal market. With this initiative and the continued growth in new retail stores, we are seeing BC’s legal cannabis sales grow. This is welcome news for the industry, since BC still has a very robust illicit market.

At the end of 2021, there were 403 cannabis retailers in BC, which was 100 more than at the end of 2020. 2021 sales topped C$551M, with consecutive monthly growth. The primary factor for the growth in sales was the increased accessibility of the legal market, with nine new stores opening per month, on average. This strong relationship between store counts and monthly legal cannabis sales can be seen clearly in the chart below.

For 2022, we expect an average of eight new stores to open each month. We expect total 2022 sales to grow by 18% or C$98M, to C$649M.

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

18 March 2022 Copyright © 2022 New Leaf Data Services, LLC.  All rights reserved

March 11, 2022

U.S. Cannabis Spot Index — March 11, 2022

U.S. Cannabis Spot Index — Published March 11, 2022

The U.S. Cannabis Spot Index increased 4.7% to $1,232 per pound.

 

The simple average (non-volume weighted) price increased $30 to $1,495 per pound, with 68% of transactions (one standard deviation) in the $669 to $2,320 per pound range. The average reported deal size was nominally unchanged at 2.5 pounds. In grams, the Spot price was $2.72 and the simple average price was $3.30.

 

The relative frequency of transactions for indoor flower was up 2%, while greenhouse deal frequency was essentially unchanged this week. Outdoor transaction frequency fell 1%. 

                 

 

The relative volume of indoor flower rose 3%; that of greenhouse flower fell 1% and that of outdoor flower fell 4%.

 

Repercussions of cannabis oversupply are ricocheting around the industry as cannabis prices remain under pressure across much of the country. Publicly listed companies have been on a buying binge that has resulted in lower stock prices, cancellation of planned takeovers, and even scaled back production. 

 

Ascend Wellness stock has lost over 67% of its value this year, trading around $4 per share after missing both earnings and revenue projections this week. Ascend Wellness’ CEO said the cannabis industry has been “caught off guard by current price competition in the market.” He went on to add, “due to competitive market conditions and our lack of new assets coming online in the first half of this year, we do not anticipate any revenue growth or margin expansion.”

 

Scotts Miracle-Gro lowered earnings expectations citing their Hawthorne division, which sells supplies to cultivators, saying, “sales in the segment have been challenged for several months due to an oversupply of cannabis, which is leading to a slowdown in both indoor and outdoor cultivation.” The CEO said the company “no longer expects a significant acquisition in 2022,” having ended merger and acquisition discussions with an unnamed firm. 

 

M&A activity has dried up in the Midwest after last year saw companies paying $25 million for Illinois dispensaries on the supposition such outlets would generate $14 million per year in sales. Players interviewed by Grown In say assets are now overpriced and buyers are awaiting new licenses to be issued in Illinois, noting they also expect a “bearish” economy and depressed MSO (multi-state operator) stock prices in 2022. 

 

While companies may have shot a hole in their own boats by going on acquisition and expansion sprees even in the face of falling cannabis prices, regulatory changes and legal woes are nipping at their heels. Illinois looks set to consolidate regulatory agencies with an eye toward protecting and expanding social equity programs, according to Grown In. New York announced a program that will grant the first 100 to 200 adult use cannabis licenses to social equity applicants. The White House has banned cannabis equity investments by federal employees seeking security clearances, according to Bloomberg, which also reported the Russian attack on Ukraine is weighing on Curaleaf’s stock price due to company executives’ Russia connections. 

 

Lower cannabis prices underlie nearly every issue affecting cannabis markets – as acknowledged by some large firms, as well as plenty of growers – but few are willing to pull back on growing to steady the market. Enter economics and the notion of “creative destruction.” While the cannabis industry is “new,” it is also old: methods of production and distribution have been scaled up and professionalized, but at their cores remain largely unchanged even as the industry has expanded across the country. MSOs did not innovate so much as buy a place in the industry. 

Meanwhile, the takeover targets of MSOs and other large firms have become expensive, due in no small part to their own bidding up of those targets during periods of rapid acquisitions. They built out massive canopies, undercut prices to gain market share, and are now suffering because prices are low, and headed lower. The situation is an echo of that which has been taking place amongst publicly traded Canadian companies, which we have covered via our Canada Cannabis Spot Index reports. While some MSOs will survive spending sprees on expensive takeovers and the price rout, the next round of companies entering the market may do so based on new models more suited to interstate trade or full legalization, where being the middleman is more lucrative than being the everyman. The details remain to be sorted, but what is certain is that MSOs are expecting a rough 2022.

 

April 2022 Implied Forward unchanged at $1,225 per pound.

 

The average reported forward deal size increased 2 pounds to 77 pounds. The proportions of forward deals for outdoor, greenhouse, and indoor-grown flower were unchanged at 33%, 52%, and 15% of forward arrangements, respectively.

 

The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 94 pounds, 72 pounds, and 59 pounds, respectively.

 

 

At $1,225 per pound, the April 2022 Implied Forward represents a discount of 0.5% relative to the current U.S. Spot Price of $1,232 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:

Colorado

January Sales Fall 10% Month-on-Month

Maine

Steady as She Goes – Maine Sales up 2.8%

Michigan

Michigan Cannabis Businesses Must Insure

National

Confluence of Events: Russia and Inflation Weigh on Cannabis Businesses

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

11 March 2022.  Copyright © 2022 New Leaf Data Services, LLC.  All rights reserved