September 21, 2021

Colorado Marijuana Sales on Track to Surpass 2020 Totals

Colorado Landscape
Photo: Shelby Smith

The Colorado Department of Revenue (CDOR) recently released its monthly Marijuana Sales Report for July 2021. According to that report, demand picked up month-on-month, to levels not seen since early spring 2021. While there’s been a good bit of variability in monthly sales in 2021, the last three months have seen medical sales move forward on their average monthly sales for the year at $36.4 million per month. The adult-use monthly sales were $167.8 million — well over 2021 average monthly sales at $156.8 million.

In July, combined retail sales of adult-use and medical cannabis totaled $202.8 million, up by 8.3% from June’s combined revenues of over $187.3 million. On a year-on-year basis, those July 2021 sales, at $202.8 million, are up just 2% from the July 2020, $198.9 million data. Year-to-date, combined adult-use and medical cannabis sales in Colorado, at $1.35 billion, put Colorado on pace to exceed the 2020 total sales, which came in at $2.2 billion.

Adult-use retailers in Colorado tallied over $167.8 million in July, a 9.9% increase over June adult-use retailer sales. Year-over-year, July 2021 adult use retail sales, at $167.8 million, were down 9.1% from July 2020’s monthly figure of $183.1 million. Retail revenues from the adult-use sector expanded by over 24% from 2019 to 2020 but look set to expand by just 6.7% in 2021 if retail revenues keep their current monthly pace.

Medical cannabis revenues in July 2021 came in at just over $35 million, up 1.5% from June 2021’s $34.5 million, but down by 23.6% from the July 2020 figure of $43.3 million.

In the wholesale realm, tax collection data for August 2021 – which corresponds generally to wholesale transfers and transactions executed in July – shows that the 15% excise tax on wholesale activity in Colorado’s adult-use system resulted in nearly $9.5 million accruing to state coffers. August wholesale excise tax receipts are down by 3.9%, compared to tax collections from the previous month, which amounted to just under $9.9 million.

Average Market Rates (AMRs), used by the state to assess the wholesale excise tax on internal transfers of flower, trim, and other plant material between commonly-owned adult-use licenses, increased from June to July. (Since August 2017, AMRs are adjusted quarterly by the Colorado Department of Revenue.) The Q3, 2021 effective tax on internal transfers of flower from licensed cultivation businesses to commonly-owned retailers went up $1 per pound to $1,309 for flower, effective through September 30, 2021. While some AMRs were little changed in July, the tax on bud allocated for extraction jumped by 71.6% to $901 per pound, the retail trim rate jumped by over 20% to $425 per pound and trim allocated for extraction went up nearly 7% to $425 per pound. These changes suggest that the downturn in July tax collections is likely due to less wholesale product being transferred between commonly owned adult use licenses. The table below shows AMRs for all of 2021 with the newly issued October AMR at the top of the table.

The AMR for bud allocated for extraction will fall over 50% to $405 per pound in Q3, but the AMR for trim will rise nearly 24% to $302 per pound, commencing on October 1, 2021.

CDOR calculates AMR for each quarter by averaging the first two months of the previous quarter with the last month of the quarter before, to come up with the AMR for the next quarter.  For instance, to find the AMR for Q4, 2021, CDOR averages prices from June 1 through August 31, 2021, thus the average captures part of the previous two quarters in calculating the next quarter AMR.

September 13, 2021

Oregon Cannabis Market Oversupply May Be Here to Stay

cannabis grow
Photo: Crystalweed

It is no surprise to Oregonians in the cannabis business that the market is oversupplied. Cannabis Benchmarks has heard this for several weeks running, with growers saying oversupply started affecting prices in Spring 2021. What growers have not mentioned, but may know or suspect, is that oversupply may be a permanent market condition that will not be relieved by holiday sales, according to at least one industry insider.

The only relief for oversupply is interstate commerce, according to Casey Houlihan, Executive Director of the Oregon Retailers of Cannabis Association, an industry advocacy group. He expects the market to remain oversupplied and for growers to continue to overproduce even in the face of falling prices. Outdoor grown is fetching $400 – 600 per pound in some instances but “outdoor ‘A’ bud is trading as low as $85 [per pound] for big transactions.” Houlihan does not see prices increasing from a holiday surge due to massive oversupply and in fact notes, “harvest may create a race to the bottom” this year as growers seek to reduce inventory overhang. He notes that plenty of Oregonians “grow their own” and his experience is that prices drop during harvest.

Outdoor grown product is coming under the most price pressure and, as noted, big transactions can crater price. That said, according to Houlihan, “indoor, top tier product is fetching $2,700 per pound. … and that’s what’s really holding the market up.” In fact, he says that there is “huge demand for maybe two dozen [indoor] growers,” whose “crops are spoken for while still in the ground.” Houlihan also notes product grown in “hoop houses” enjoys a “slight premium” over outdoor-grown product and acknowledged that the largest demand is for indoor-grown product. He noted people grow their own and receiving a handful of home-grown from a friend for free is a regular occurrence. In short, there is so much outdoor-grown available, indoor flower has become much sought after by those purchasing cannabis at legal stores.

So how are growers dealing with the massive oversupply, such that people regularly give friends “handfuls” of cannabis for free? According to Houlihan, growers are fully cognizant of the oversupply but will continue to grow, adding more canopy if possible, because there is a full expectation Senate Bill 582 will create an outlet for Oregon’s excess supply. SB 582 was passed into law in 2019 and will allow the governor to “enter into agreements with other states for the licensed transfer of cannabis between legal markets,” once the federal government allows such commerce in some form.”  Full federal legalization of cannabis and interstate commerce is the accepted wisdom in Oregon, according to Houlihan, who expressed confidence that interstate sales are but two years away.

At the end of the day, Oregon’s growers are counting on SB 582 and full federal cannabis legalization. Until then, oversupply appears as if it is the rule, not the exception.

September 7, 2021

Expansion of Michigan Cannabis Production Drives Wholesale Prices Down

Photo: Ryan Parker

Michigan Has Issued Massive Number of Grow Licenses in 2021

Grown In recently reported on a massive increase in grower licenses in Michigan, such that there has been a four-fold increase in Adult-Use Class C licenses this year compared to December 2020. Class C licenses can be “stacked,” allowing growers to possess multiple licenses, with each license granting the right to grow up to 2,000 mature plants. In Michigan, “mature plants” are defined as plants in the vegetative and flowering stage. Total Class C adult-use licenses now stand at 340, translating into a potential production capacity of 680,000 plants. Class B adult-use licenses, granting the holder up to 500 plants, have increased nearly six-fold to 35.

Michigan’s medical and adult-use markets are separate systems, and as of July the medical market has more than double the class C licenses counted in December 2020. Class B medical grow licenses have jumped from five to 13 growers in the past seven months. Plant count limits for medical cannabis licenses are different from those of their adult-use counterparts, and stand at 500 for Class A, 1,000 for B, and 1,500 for C. There are now 906 total grower licenses in Michigan representing 1,402,300 potential plants.

Michigan Cannabis License Types

Cannabis Benchmarks notes a significant downward trend in Michigan’s Spot price since January 2021, with prices falling by more than $400 per pound, coincident with the vast expansion of grower licenses.

MLive reports Michigan plans on expanding license types and lower licensing fees with a public hearing on the proposal planned for September 27. Schools would be granted a special license to purchase cannabis for study purposes and Micro-Licenses would be offered the ability to increase their maximum allowable plants from 150 to 300. However, unlike current Class A licenses, no in-house processing will be allowed. That said, the new Micro A Licenses would allow owners to buy edibles and concentrates from other licensed processors to sell from their stores.

The proposal would also slash license fees including application fees. Type C grower license fees would drop by $16,000 to $24,000, as would processor fees. Retail, labs and transportation fees would drop to $15,000 from $21,000. It appears Michigan wants more players in the market and that could ultimately bring down flower and derivative prices.

August 31, 2021

California Retail Cannabis Demand Soars as Supply Expands Driving Wholesale Prices Down

California’s Legal Market Continues to See Strong Sales Growth

The California Department of Tax and Fee Administration (CDTFA) recently issued data on taxable sales and cannabis tax collections for Q2 2021. Additionally, Q1 2021’s figures were updated and completed after many businesses took advantage of an extension to remit granted by the state in light of the coronavirus. Overall, the data shows retail sales growth continued to be strong, while the amount of wholesale supply entering the licensed system in Q2 did not expand quite as much as retail demand.

Taxable sales for Q2 2021 reached almost $1.36 billion, up by over 11% from Q1 2021’s taxable sales of $1.22 billion. Q2 2021’s taxable sales were up by 24.5% year-on-year.

Total California Cannabis Tax Receipts Surge 26% Year on Year

Total taxes collected in Q2 2021 were $333 million representing a 9.3% increase quarter-on-quarter and a 26% increase in total cannabis tax revenue year-on-year. The expansive quarterly gains seen through the first pandemic period last year have tapered off in 2021, which may be due in part to people returning to work and having less leisure time. Additionally, the rather sharp 21.9% drop in the wholesale flower price observed by Cannabis Benchmarks from November 2020 – January 2021 may also have played a role in slowing sales and tax revenue growth.

In 2021, however, excise tax receipts began a slow climb that coincided with a gradual recovery in price, with January to June price climbing 15.3%. California’s 15% excise tax is levied on retailers and is calculated based on the wholesale price paid, plus a markup rate set by CDTFA, in the case of bilateral trades between two unaffiliated parties.

California Cannabis Excise Taxes

While there has been a good bit of volatility in quarterly tax receipts, the most significant take-away from the data is the steady year-on-year growth in California cannabis taxes. The pandemic ‘bulge’ in tax collections was not followed by lower tax receipts. In fact, in regard to the state’s general sales and use taxes, which are levied on purchases made by adult-use consumers, quarters following the pandemic-related surge in taxes gave back very little, sinking just 1.8% in Q4 2020 and 2.3% in Q1 2021. When extraordinary events spike market peripherals, a reversion to the mean value is far more common than a trend reversal in said peripherals, as demonstrated below.

California Cannabis Sales Tax

CDTFA also recently provided Cannabis Benchmarks with a breakdown of cultivation tax receipts for Q1 and Q2 2021. As California’s cultivation tax is a flat tax by weight for each product type, the data provides for quarterly and annual comparisons on the volume of product that entered California’s regulated market in recent periods. For the first two quarters of 2021, shown in the table below, tax receipts continue to increase, albeit at a slower rate than increases seen in 2020

California Cannabis Cultivation Tax

Quarterly wholesale sales volume figures, extrapolated from CDTFA cultivation tax data, are shown in the table below. The cultivation tax is levied on product when it “enters the commercial market,” which is defined by CDTFA as when the product clears required testing.

California Cannabis Cultivation Volume

Year-on-year wholesale volume of product sold climbed rather sharply with Q2 2021 flower sales volume up 22.2%, leaves (trim) up 33.6%, and fresh plant volume up 17.9%.

Wholesale product volumes depicted in the table above reflect increased production meeting expanding demand in 2020 amid the pandemic bulge; the period of time in which lockdowns were in place, unemployment was skyrocketing, the unemployed were helped with federal subsidies, and millions of workers were tasked with working from home. The jump in sales volume of all product types from Q2 to Q3 2020 is evident. However, while wholesale sales volumes for Q2 2021 are up year-on-year, they are below those recorded in Q4 2020 owing to the fall harvest supply surge that occurs in the final quarter of any given year.

Subsequent quarterly changes into 2021 show fewer taxes paid than in Q4 2020 coincident with less product volume entering the commercial market in each of the first two quarters of this year. From Q2 2020 to Q2 2021, cultivation tax receipts, shown in the table below, have climbed 31.5%, reflecting annual gains despite quarterly volatility.

California Cultivation Tax Receipts

Recent Tax and Sales Data Not Reflective of Current Market Landscape

How quarterly data will look for Q3 2021 will be interesting considering that currently-observed market dynamics appear to have changed dramatically from the prior quarter. As we noted at the outset of this section, sales and tax collection data through Q2 2021 paints a picture of a market in which retail demand is expanding at a greater rate than production. Indeed, our California Spot Index trended upward through Q1 and Q2 of this year, coincident with the data examined above. However, as we have noted recently, wholesale flower prices are falling and reports out of California indicate a buyer’s market.

The Eureka Times Standard recently reported on overproduction in Humboldt County and other areas weighing on price. Growers say the answer for overproduction of this magnitude is for the state to provide relief in the form of lower taxes and fewer licenses, but such changes will not stop overproduction from already-licensed large-scale growers across the state. The Humboldt County Growers Association is pinning their hopes on national and international legalization so that they might market locally produced cannabis across the country and around the world.

Cannabis Benchmarks California Spot Price Dives Below Long-Term Trend

Spot prices are for immediate delivery of a commodity; they contain no cost of carry surplus and generally reflect the cost of a commodity in the present and for immediate, or within several days, delivery of the purchased commodity.

Cannabis Benchmarks California Spot Index from the start of 2020 through last week is depicted in the chart below. Note the longer term trend, dating back to Spring 2020, has been broken by the current late summer sell-off. Indeed, as seen below, California’s Spot has reached a new year-to-date low as of August.

With outdoor and light deprivation harvests beginning, prices may continue lower. Although demand for freshly-harvested material could help steady price initially, as has been the case in some previous years, accounts out of California suggest an early harvest price bump may not be in the cards this year due to significant supplies from 2020 and this summer’s light-deprivation crops swamping the market.

California Cannabis Spot Price

August 24, 2021

Michigan Cannabis Demand and Retail Prices Climb in July

michigan cannabis sales increase
Photo: Visual Stories Michelle

The Michigan Marijuana Regulatory Agency (MRA) released July 2021 cannabis market data recently. Sales numbers show a turn-around in recent declines. Total combined sales, including medical and adult-use, reached $171,070,641 in July, a 13.8% jump from the June figure.

Most of the month-on-month gains were in the adult use market, which saw a 17.8% jump in sales from June to July. Flower sales were up $8.4 million or 14.2% month-on-month, vape sales were up $5.38 million or 22.7%, and edibles jumped $3.2 million. Gains were recorded across all product categories, suggesting a general ramping up of demand.

June medical cannabis retail sales increased by just 2.6% to $42,744,658. As in other states, it appears medical cannabis sales will stabilize somewhat, while the adult-use side will continue to see stronger growth.

Given the uptick in demand, prices may continue higher this summer. MRA data from the adult-use market shows retailers sold 18,235 pounds of flower in July, while holding almost 22,300 pounds in inventory at the end of the month. Adult-use cultivators were also holding 17,860 pounds of flower that had passed the state’s required testing in inventory as of July 31. Overall, roughly two months’ worth of marketable supply in inventory at current demand levels does not represent a long runway, especially in a growing market.

Both retail and wholesale prices rose in Michigan’s market in July. According to MRA data, the average retail flower price in the adult-use market was $217.94 per ounce in July versus $209.82 in June. Medical ounce prices were up as well, increasing $4.02 in July to $213.89.

The Cannabis Benchmarks Michigan Spot Index saw monthly average volume-weighted price per pound rise by 5.6% from June to July.

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