The Assessment Methodology behind Cannabis Benchmarks®
Cannabis Benchmarks®is a division of New Leaf Data Services, LLC.Price assessments are published weekly, on Friday, unless there is a public holiday, in which case assessments are published on the holiday or the following business day.
We publish a variety of standardized wholesale benchmark price assessments, including:
U.S. Cannabis Spot Index – This benchmark is an assessment of the national spot price paid to cultivators and wholesalers, pre-tax, for the week, for one pound of a generic strain with homogenized potency of THC and CBD.
U.S. Cannabis Implied Forward – This benchmark is an assessment of the national forward wholesale transactional price that buyers are agreeing to pay, prepaying, or would be willing to pay cultivators and wholesalers, pre-tax, this week, for one pound of a generic strain with homogenized potency of THC and CBD, to be delivered in the future. The U.S. Cannabis Implied Forward is linked to the spot market and is derived from data polled by market participants, and informed by their outlook for wholesale prices, which reflect multiple independent views of supply and demand market fundamentals, such as the timing and amount of new cultivation capacity coming online.
COLLECTION OF PRICE DATA
At Cannabis Benchmarks®, our goal is to capture a high percentage of buy/sell wholesale transactions across local cannabis markets. We gather data from three primary sources: our Team of in-the-field price reporters who are in constant contact with cultivators and dispensaries across the country; transactions submitted by licensed market participants who are members of our Price Contributor Network; and data provided in partnership with exchanges, marketplaces, brokers, vendors and associations. Our transaction data, and transacting sources, remain confidential and secure so industry participants can report transaction details to us with complete confidence.
We routinely gather and assess prices on nearly twenty state markets, depending upon market liquidity and statistical significance of the sample. Our price assessments reflect hundreds of transactions and thousands of pounds of wholesale flower from across the legal wholesale markets. Some legal markets, such as Montana, are vertically integrated and do not have a legally functioning wholesale market and are not incorporated into our national assessments. Other legal markets, such as Maine, are also vertically integrated, but have provisions allowing wholesale transactions among participants and are incorporated into our national assessments.
About half of our team originates from the cannabis and hemp sector and brings expertise in cultivation and wholesale markets. The other half of our Team originates from the commodity data services sector, and brings deep experience in price assessments in energy, metals, petrochemicals and agricultural products to the cannabis industry. Our assessments are developed using the same statistical/econometric methods and analysis successfully deployed in every other agricultural market.
As the availability of pricing data grows and becomes more stable, we will publish differentials for varying potencies, strains, locations, and other quantitative and qualitative factors that influence wholesale prices. We continue to explore different ways to illustrate statistics related to the robustness of our assessments, and we sincerely value the confidence that the market and our customers have placed in us.
For each benchmark, we start by eliminating transaction data points our team deems to be outliers. Within a benchmark, if the number of completed transactions falls below 60, bid-ask midpoints are added to the pool of data points used in the calculation of the assessment. If deemed necessary, prior transactions can also be included, in reverse chronological order. Cannabis Benchmarks’ assessment process is guided by IOSCO’s Principles for Financial Benchmarks.
Volatilities are calculated as the annualized standard deviation of the log price changes over the historical period. Volatility analysis uses historical weekly prices providing 51 log price changes for each year (equivalent to percentage price changes). The annualization factor used is 7.21 (the square root of 52) which adjusts the standard deviation from weekly to annual, the most common volatility metric.
ABOUT PRICE REPORTING AGENCIES
Price Reporting Agencies (PRAs), like Cannabis Benchmarks®, are independent objective assessors of price. A market price assessment, or benchmark, is the price of a commodity traded in a single marketplace, or across multiple markets. Price benchmarks provide transparency and promote market efficiency, and they are relied upon in every commodity market. In addition to assessing and establishing market price benchmarks, PRAs also explain why prices are moving by reporting on the underlying drivers of price change.
PRAs use statistical methods to analyze, assess and establish price benchmarks that are then published for the education and use of market participants, analysts and investors. To ensure objectivity, PRAs do not buy, sell, trade or otherwise take positions in the commodities that they assess.
Asymmetrical information—when one player (or a small group of players) has more information than others—leads to inefficiency and a few big winners, creating more losers with bigger losses. When markets have symmetrical information, there is more homogeneity to the winners and losers.
PRAs provide markets with price transparency, which promotes competition and creates market efficiency, which benefits the long-term interest of all market participants, particularly in opaque markets, like cannabis, where most deals are conducted bi-laterally—essentially in secret—between a buyer and seller.
The largest and most utilized PRA in the world is S&P Global Platts (Platts). Each trading day, Platts assesses thousands of commodity prices covering energy, agriculture, metals, fertilizers, petrochemicals, and more. Traders around the world settle tens of billions of dollars’ worth of trades each week on independent price assessments by Platts. For example, natural gas traders on NYMEX, crude oil traders on ICE, and iron ore traders on SGX settle their contracts on Platts price assessments. Half of our Team at Cannabis Benchmarks® worked together at S&P Global Platts.
Cannabis Benchmarks® uses analytical methods similar to those employed by Price Reporting Agencies assessing spot prices in other commodity markets. Nevertheless, cannabis markets are characterized by opaqueness and variable liquidity. While we rely on quantitative methods as much as possible, data can be sparse and unreliable; therefore, from time-to-time, components of our assessment process, in whole or in part, may be based upon judgment and opinion. New Leaf Data Services makes no representation or warranty as to the results to be obtained by market participants who elect to use Cannabis Benchmarks® prices and indices as the basis for transactions.
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