June 30, 2020

Retail Marijuana Sales in Oregon Spike in May

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The Oregon Liquor Control Commission (OLCC) recently released sales and production data for May 2020, a month in which the state began reopening after being under a statewide stay-at-home order throughout April. Under Oregon’s reopening plan, individual counties had to receive permission from the state to begin doing so. Numerous counties received such approval around mid-May. Notably, though, Multnomah County, in which the city of Portland is located, remained under a stay-at-home order for the entirety of May. Of course, cannabis retailers have been considered essential businesses in Oregon and remained open during statewide and local lockdowns.

Sales jumped again in May. While all product categories saw increases in sales revenue and volume, demand for flower has spiked since February. Revenue from sales of flower in May was up by 55% compared to monthly flower sales in February. While unsold inventory figures remain robust, wholesale flower prices persisted in an upward trend that commenced in April.

The most recent OLCC data shows that total retail sales spiked to over $103 million in May, up by roughly 15% from over $89.7 million the month prior. May’s sales represent a new record high for Oregon’s licensed cannabis market for the third month in a row. While retail revenues typically increase month-over-month from April to May, the magnitude of the spike documented this year is significantly larger than in prior years.

Combined with the uncharacteristic rise in sales that occurred in April, the jump in revenue in May continues to indicate that the COVID-19 pandemic and accompanying conditions have resulted in a discernible increase in demand in Oregon. The state’s market was already growing at a robust pace prior to the coronavirus gripping the U.S. in March, with a 30% year-over-year rise in sales recorded in February. May 2020’s sales are up by 60% year-over-year.

In May, sales revenue generated by adult-use consumers rose to over $91.5 million, up from just over $81 million in April. Meanwhile, sales to patients also increased from April to May, from almost $8.7 million to over $11.5 million.

Month-over-month changes in retail sales revenue and volume for the OLCC’s product categories are as follows: Revenue from sales of “usable marijuana” (the OLCC’s term for flower, trim, and pre-rolls) rose from over $52.2 million in April to over $60.8 million in May. Sales volume of usable marijuana expanded to almost 27,000 pounds in May, from almost 24,000 pounds in April.

Concentrates and extracts generated over $25 million in retail revenue in May, up from over $22.4 million in April. The number of units of concentrates and extracts sold in May rose to almost 1.3 million, from a bit over 1.2 million the month before.

Finally, sales revenue from edibles and tinctures was back on the rise in May, increasing to over $9.6 million, from almost $8.7 million in April. The number of units of edibles and tinctures sold to consumers and patients also increased, from almost 900,000 in April to around 990,000 in May.

Monthly harvest figures were on the rise as well, from roughly 165,000 pounds of wet weight in April to around 200,000 pounds in May.

As of June 2, almost 775,000 pounds of unsold “usable marijuana” was logged in the state’s CTS, down from a bit over 850,000 pounds recorded as unsold in early May. OLCC data shows that statewide unsold inventories of concentrates and extracts held fairly steady at roughly 35,000 pounds; that for edibles and tinctures rose from a little over 250,000 pounds to approach 275,000 pounds.

As cannabis demand in Oregon soars to unprecedented levels for the state, market participants are attributing the rising sales to a variety of factors. These include: people who are working from home or unemployed feeling more comfortable consuming without fear of being fired; consumers seeking to alleviate stress and anxiety; general ease of access due to allowances for online ordering, curbside pickup, and consumers increasingly using delivery; and still-low retail price points. Additionally, some retailers remarked that they are seeing a good number of new customers, who are turning into regular purchasers.

June 23, 2020

Arizona Medical Cannabis Patient Count Rises Nearly 20% Since This Time Last Year

Image Source: Martijn Baudoin via Unsplash

The Arizona Department of Health Services (ADHS) recently released its monthly report on the state’s medical cannabis program for April 2020. Sales remained strong despite the COVID-19 pandemic and a stay-at-home order issued by Governor Doug Ducey at the end of March. However, April’s sales were off from March’s record levels, unlike in 2019 when sales volume rose from March to April. The inability to celebrate 4/20 as the industry does typically likely dented April 2020 sales, as daily data shows a drop-off in sales volume and transaction numbers from last year’s 4/20. While demand remained robust, Arizona’s Spot Index in April persisted in a downward trend that began in late March.

As of April, Arizona’s medical cannabis program counted 235,999 patients on its rolls. That figure is up by 2.5% from the 230,317 patients registered in the program at the end of March. The rate of growth in the state’s patient count is larger than it has been in prior months, when it typically was between about 1.5% and 2%. The number of registered patients in Arizona in April 2020 is also up by 19.8% year-over-year, from 197,025 in April 2019.

According to ADHS numbers, 14,829 pounds of cannabis flower were sold through the state’s dispensaries in April, a figure that is down by 3.8% compared to the 15,408 pounds retailed to registered patients in March. March 2020’s flower sales volume remains the record high for Arizona’s market. April 2020’s flower sales volume is up by 25.4% from 11,830 pounds in the same month the year prior.

The decline in flower sales volume from March to April this year breaks from 2019’s data, which shows an increase of 1.3% in that span. Based on daily sales data reported by ADHS, it appears that the COVID-19 pandemic dampened 4/20 sales somewhat in Arizona this year. On April 20, 2019, medical cannabis dispensaries in the state recorded about 47,000 transactions and sold roughly 1,300 pounds of all product types. On April 20, 2020, less than 1,000 pounds of all product types were sold in about 41,000 transactions. The inability of people to gather and partake collectively may have put a dent in April 2020’s flower sales.

The ADHS report also includes sales volume figures for edibles and “marijuana other,” which constitutes extracts and non-edible infused products. April saw 459 pounds of edibles sold, down by 10.4% from 512 pounds sold the month prior. April 2020’s edibles sales volume is down year-over-year, by 16.2%, from 548 pounds in the same month a year ago. April is the fourth straight month in which an annual downturn in edibles sales volume has been reported.

“Marijuana other” products saw their sales volume continue to grow in April 2020. 1,244 pounds of “marijuana other” products were retailed in Arizona in April compared to 1,175 in March, an increase of 5.9%. This product category has experienced massive year-over-year growth, with April 2020’s sales volume up by 77.2%, from 702 pounds in April 2019.

Combined sales volume of all product types reached 16,531 pounds in April, down by 3.3% from March’s total sales volume of 17,095 pounds. As with flower sales volume, March 2020’s cumulative sales volume remains the record high for Arizona’s market, though April 2020’s sales are the second-highest monthly total recorded since the opening of the state’s medical system. April 2020’s cumulative sales volume is up 26.4% relative to a year prior, when dispensaries sold 13,079 pounds of product to patients.

As noted above, Arizonans were subject to a stay-at-home order for essentially the entire month of April. Strong sales continued, to which the second-highest monthly sales volume total in the history of the state’s market attests. However, like our conclusions drawn from examining March’s daily sales data, it appears that the threat of the pandemic worked to suppress sales somewhat in Arizona’s legal medical market. Previously, the daily transactions and sales volumes were down in late March, after the severity of the virus became apparent.

While April 2020’s sales total is up significantly year-over-year, it did not increase by magnitudes as large as those documented in January through March of this year. Daily sales volumes on Fridays remained strong in April 2020, as they are under normal circumstances, but the number of transactions was not up significantly compared to Fridays in April 2019. And, again, sales volume and transaction numbers for 4/20 were off notably this year, though that could also be due to 4/20 falling on a Monday in 2020, compared to a Saturday in 2019. Overall, the data indicates that medical cannabis patients in Arizona continued to demonstrate strong demand during the pandemic and the state’s stay-at-home order, but did take measures to avoid crowds to some extent, with a lack of 4/20 festivities likely impacting total monthly sales negatively.

June 16, 2020

Colorado Marijuana Sales In 2020 Outpace Sales in 2019

The Colorado Department of Revenue (CDOR) recently released its monthly Marijuana Sales Report for March 2020. Total retail demand jumped from February to March by a significant magnitude, as has come to be expected based on prior trends. However, the month-over-month increase this year was notably smaller than those observed in the same period in the previous three years, suggesting that consumers may have been stymied from going out and purchasing cannabis due to COVID-19, which began to impact Colorado in mid-March. However, medical cannabis sales in March climbed to their highest level in over a year, indicating that patients increased purchasing, possibly to avoid potential infection. Still, wholesale prices in the state persisted in sliding downward in March, a continuation of a trend that originated at the outset of December 2019.

In March, combined retail sales of adult-use and medical cannabis totaled over $161 million, up by 15.2% compared to February’s combined revenues of over $139.7 million. While significant, this year’s proportional increase in cumulative monthly sales from February to March is of a significantly smaller magnitude relative to those documented in the same span in prior years. From February to March 2017, total retail revenue rose by 22.1% month-over-month; it increased by 20.2% in the same span in 2018; in 2019, total sales grew by 19.3% from February to March.

March 2020’s cumulative sales total represents an increase of 13.1% year-over-year. Through the first three months of 2020, Colorado medical and adult-use retailers have racked up a combined sales total of over $440.6 million, up by 14% compared to over $386.6 million in total year-to-date sales through the same period last year. Both figures are down from February 2020, when total monthly sales were up 17% from the year before and year-to-date revenue was up by 14.5%. Still, sales growth so far in 2020 continues to outpace that observed in 2019, when total retail sales increased by over 13% from 2018.

Adult-use retailers in Colorado tallied over $128.1 million in March. Revenues from the state’s adult-use sector in March were up by 14.3% compared to the over $112 million in retail sales generated in February. Similar to total sales, adult-use revenues typically jump in March, and did so by a larger magnitude last year, of 19.9%. March 2020’s adult-use sales are up 12.1% from those documented for the same month in 2019. In 2019, annual revenue generated by recreational retailers grew by 16.2% compared to the year prior.

Medical cannabis revenues in March came to over $32.9 million, up by 18.9% from the almost $27.7 million in sales tallied in February in that section of the market. March 2020’s medical cannabis sales are the highest monthly revenue figure from that segment of the state’s market since October 2017, indicating that registered patients stocked up ahead of coronavirus-related restrictions being put in place. Retail sales in Colorado’s medical market in March 2020 are up 17.2% year-over-year, relative to almost $28.1 million in March 2019.

In the wholesale realm, tax collection data for April 2020 – which corresponds generally to wholesale transfers and transactions executed in February – shows that the 15% excise tax on wholesale activity in Colorado’s adult-use system resulted in over $7.09 million accruing to state coffers. April’s wholesale excise tax receipts are up by 8.9% compared to tax collections from the previous month, which amounted to almost $6.51 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 were unchanged from February to March. (Since August 2017, AMRs are adjusted quarterly by the Colorado Department of Revenue (CDOR).) The increase in receipts from the 15% excise tax on wholesale transfers and trades in the state’s adult-use sector indicates that such activity expanded in March relative to the month prior.

However, April’s collections from the wholesale excise tax are down compared to February’s (which correspond to trading in January), when the same AMRs were in effect. This is in line with trends from prior years and indicates that COVID-19 – and accompanying restrictions and adjustments to the operations of retailers – did not result in significant changes to wholesale trading habits, at least in March. In other words, it does not appear that retailers looked to stockpile product in anticipation of higher sales, nor did they spurn the idea of bringing in new inventory.

June 9, 2020

Tax Rates for Wholesale Cannabis In California to Remain Steady for Remainder of 2020

In a year marked so far by incredible turbulence, at least one aspect of California’s legal cannabis industry will remain constant. The California Department of Tax and Fee Administration (CDTFA) recently announced that the mark-up rate used in the calculation of the 15% excise tax on retailers will remain at 80% for the remainder of 2020. CDTFA is tasked with determining adjustments to the mark-up rate every six months. Previously, CDTFA increased the mark-up rate from 60% in 2019 to 80% starting January 1, 2020. This resulted in an effective 12.5% increase in the tax burdens of retailers purchasing cannabis and other products wholesale from separate entities.

To explain further: When retailers engage in bilateral transactions with unaffiliated licensees, they do not simply pay the 15% excise tax on the amount that was paid for the product, nor on the gross revenue from its retail sale. Instead, the 15% excise tax is levied on the “wholesale cost” of the product, defined by CDTFA as the price paid plus transportation costs, as well as the markup set by CDTFA.

For example, let us say that a retailer purchases a pound of cannabis flower for $1,000, including transportation costs. In determining the tax burden on that pound of flower, the retailer must apply the CDTFA-determined markup, then take 15% of that amount. Given the 80% markup, that pound of cannabis would have an “average market price” of $1,800 in the eyes of CDTFA, resulting in a tax burden of $270. Retailers engaged in “nonarm’s length transactions” – which are essentially transfers of product between affiliated licenses – will continue to pay 15% of the gross receipts of their retail sales, as they have since the opening of the regulated market at the beginning of 2018.

Cannabis businesses in California have been advocating for tax relief even prior to the COVID-19 pandemic. It does not appear as if they will get their wishes in the near term, with legislative activities curtailed severely, along with state budgets taking big hits due to the economic fallout from the virus and accompanying mitigation measures. Still, licensed operators in California’s legal market will likely be relieved that another tax rise is not in the cards for the rest of the year.

Meanwhile, local decisions continue to play a large role in the development of the state’s legal cannabis market. For example, growers attempting to set up operations in Santa Barbara County could see increased requirements for gaining permits if a recommendation by the Planning Commission is approved by the county Board of Supervisors. According to the Lompoc Record, county planning officials are recommending that a conditional use permit be required for all cannabis cultivation operations in Santa Barbara County. The report notes, “Currently, some projects only require land use permits, which are less restrictive, easier and cheaper to obtain and can be issued by the planning director.”

Cannabis cultivation outdoors and in hoop houses exploded in Santa Barbara County in the wake of California’s adult-use market opening in 2018. Previously, the area was not traditionally home to such activities. The rapid proliferation of large scale growing operations has drawn backlash from some county residents and businesses; for example, wineries with tasting rooms have claimed that the sight and smell of cannabis cultivation negatively impacts their business.

The contentiousness of the issue is illustrated by the fact that written and verbal public comments presented at a Santa Barbara County Board of Supervisors meeting on June 2 could not be fully reviewed after four hours of public testimony, forcing the Board to extend the review to a meeting scheduled for June 11. The public comment segment of the hearing has been closed and no additional comments will be accepted following the review of the remaining comments. As alluded to above, a decision by the Board to require conditional use permits for cultivation operations could curtail, or at least slow, their establishment and expansion in Santa Barbara County.

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