*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$5.33 per gram this week, up 0.3% from last week’s C$5.32 per gram. This week’s price equates to US$1,860 per pound at the current exchange rate.
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The following analysis is repeated from the July 8th, 2022, report…
- Statistics Canada reports the total licensed indoor and outdoor growing area, with the latest data showing legal cultivation capacity between October 2018 and September 2021. Indoor grow facilities were ready to go for the October 2018 start to adult use legalization, with some facilities built specifically to serve the recreational sector while others converted from the medical cannabis market.
- From the outset, the industry drastically miscalculated the volume of cannabis required to meet demand and keep the market balanced, resulting in a significant overbuilding of indoor cultivation capacity. With much of that production unsold, sitting in federal or provincial inventories, or destroyed and written off after becoming unmarketable, all the major licensed producers began to close cultivation space at indoor and greenhouse operations. Over time, we believe this will help balance supply and demand, leading to a more sustainable market.
- One year after legalization, the first outdoor cannabis cultivation site was licensed. The advent of outdoor production coincided with the legalization of so-called “cannabis 2.0” products. Such products include edibles, vapes, and topicals that were not available during the first year of legal sales. Outdoor cannabis has a significantly lower cost of production, but is often considered to be of lower quality and can be difficult to market as smokable flower. That said, outdoor flower is often employed as the raw material for extraction, with the extracted cannabinoids further refined into inhalable products such as vapes or incorporated into manufactured products like edibles.
- As with the rapid growth in indoor cultivation capacity during the first 18 months after the legal market opened, we see an almost identical situation developing with licensed outdoor production. Also similar to the overproduction of smokable flower by indoor growers, the production harvested from outdoor operations is likely to sit in inventory, as the market for cannabis 2.0 products has not grown as rapidly as anticipated. However, since much of the outdoor production will be processed into extracts and other more shelf-stable forms, the inventory of cannabis 2.0 products can be stored to support future sales and will not have to be written off or destroyed like the large oversupply of raw flower.
- In most commodity markets, understanding available production capacity usually helps forecast monthly supply. That does not seem to be the case here. Based on typical yields, Cannabis Benchmarks found no reliable relationship between potential production from licensed indoor and outdoor growing areas and the actual monthly unpackaged cannabis production reported by Statistics Canada. We attribute this to cultivation sites and operators having a very wide variance in harvest yields, as well as the fact that indeterminate amounts of licensed production areas were unused at various times.