May 14, 2021

CANADA CANNABIS SPOT INDEX — May 14, 2021

CANADA CANNABIS SPOT INDEX (CCSI) 

Week Ending May 14, 2021
1

*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$5.63 per gram this week, down 1.7% from last week’s C$5.72 per gram. This week’s price equates to US$2,103 per pound at the current exchange rate.

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This week, we provide an overview of Canadian hemp production in recent years. Commercial production became legal in Canada in 1998, with grower licenses and other regulatory provisions covering farming, processing, transportation, delivery, and sale provided by Health Canada. Prior to 2018, regulations limited commercial hemp production to fiber and grain products; hemp rules were then overhauled to allow CBD varieties as part of the Cannabis Act, which legalized cannabis for adult-use in the country. As a result, Canada has historically produced hemp for the food and nutrition market, with roughly 70% of the country’s production exported to the United States.

 

Health Canada sets out a list of hemp cultivars approved for commercial cultivation each year. All seeds planted need to be certified, with inspectors enforcing compliance. Due to previous rules, seeds approved for hemp production in Canada have until recently been exclusively grain and fiber varieties, but this year the federal government has approved new CBD dominant genetics originating from within the country, as well as those from the U.S.

Choosing the right cultivar is very important to farmers, as it determines the resulting production target (seeds, grain, fiber, and / or flower), yield, and other factors. Additionally, logged data gives farmers information on which cultivars grow best in the various regional climate and soil conditions across Canada. For example, certain cultivars grow best in drier soil conditions, such as those found in the western part of the country.

 

Based on data from Health Canada, we examined the top five cultivars planted in the past three years, which make up roughly 80% of total hemp acres planted in the country. Four of the five cultivars have been the same in each of the past three years, which goes to show that experienced farmers looked to plant cultivars that are well suited for their climate and that generate strong, high-quality yields of the production targets desired by buyers.

Finola has been the dominant cultivar and made up almost 48% of the total hemp acreage planted last year. The Finola hemp variety has proved to be an excellent source of grain and fiber, but it also produces CBD-rich flowers only 120 days after germination. The table above shows a big increase in acres planted with Finola in 2020 relative to other cultivars. This occurred even as prices for CBD-rich hemp plant material plummeted after 2019’s harvest – market dynamics that are tracked by our Hemp Benchmarks division – which is reflected in the proportionally smaller amount of hemp harvested for flower and leaves in 2020, shown in the charts below. 

 

The versatile nature of hemp is what makes it so potentially beneficial for farmers. Not only does it promote soil regeneration and absorb carbon, but each acre of planted hemp can yield various production targets. In other words, each acre of hemp harvested can be equivalent to more since various product forms can come from it. According to Health Canada, the 92,503 acres planted in 2019 was equivalent to 177,981 acres, or almost double the actual acreage planted. The 54,906 acres planted in 2020 was equivalent to 88,832 acres, or 1.62 times the actual acreage farmed. 

This data is important for U.S. farmers, who are still in the early stages of establishing and diversifying their hemp industry. In the U.S., all forms of hemp – including grain and fiber varieties – were only legalized for commercial production in 2018. As put by the U.S. Department of Agriculture, “Canada is perhaps the most relevant analog for the U.S. hemp industry. Canada’s modern hemp industry developed following a similar legislative and policy path as the U.S. industry, but it began 20 years earlier.” While the U.S. market has in its early stages been focused primarily on CBD and other cannabinoid production, a small amount of grain acreage has found a foothold in some states and interest in fiber is growing. 

For more data and analytics like this, subscribe to the Cannabis Market Insights report developed in collaboration Nasdaq. This in-depth monthly report provides exclusive data and analysis on the legal cannabis industry, focusing largely on the Canadian cannabis market, as well as the cannabis equities market in the U.S.

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

14 May 2021 Copyright © 2021 New Leaf Data Services, LLC.  All rights reserved.

May 7, 2021

CANADA CANNABIS SPOT INDEX — May 7, 2021

CANADA CANNABIS SPOT INDEX (CCSI) 

Week Ending May 7, 2021
1

*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$5.72 per gram this week, down 0.8% from last week’s C$5.77 per gram. This week’s price equates to US$2,120 per pound at the current exchange rate.

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

If you have not already done so, we invite you to join our Price Contributor Network, where market participants anonymously submit wholesale transactions to be included in our weekly price assessments. It takes two minutes to join and two minutes to submit each week, and comes with loads of extra data and market intelligence.

Last week, Statistics Canada released retail sales data for February 2021, along with some minor changes to sales figures going back to July 2020. There was nothing notable in the reissued figures. Nationwide legal cannabis sales reached C$262.9M in February.

 

January saw a small decline in daily sales. As we noted in our report from March 26, we attribute the drop to a decrease in spending after the holiday season. A similar phenomenon is common in established U.S. cannabis markets. February sales grew once again, reaching levels slightly shy of those posted for December. The chart below shows average daily sales each month by province. The growth in sales from January to February 2021 was C$0.38M per day.

Source: Cannabis Benchmarks

Looking at the month-on-month change in each province, we see that sales have started to plateau in most, with Ontario the exception. Ontario’s cannabis industry continues to see a growth trajectory as it plays a bit of catch-up in terms of the number of operational retailers in the province. 

Source: Cannabis Benchmarks

With the largest retail store footprint, Alberta continues to see a strong level of sales per legal-aged cannabis consumer. Based on the number of residents of legal age in Alberta and legal cannabis sales in the province, we calculate per capita spending amongst that cohort at C$15.42 per month. Meanwhile, in Ontario, per capita spending by legal-aged residents in the province’s regulated market is less than half that in Alberta, or C$7.63 per month.

For more data and analytics like this, subscribe to the Cannabis Market Insights report developed in collaboration Nasdaq. This in-depth monthly report provides exclusive data and analysis on the legal cannabis industry, focusing largely on the Canadian cannabis market, as well as the cannabis equities market in the U.S.

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

07 May 2021 Copyright © 2021 New Leaf Data Services, LLC.  All rights reserved.

April 30, 2021

CANADA CANNABIS SPOT INDEX — April 30, 2021

CANADA CANNABIS SPOT INDEX (CCSI) 

Week Ending April 30, 2021
2

*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$5.77 per gram this week, up 0.8% from last week’s C$5.73 per gram. This week’s price equates to US$2,114 per pound at the current exchange rate.

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

If you have not already done so, we invite you to join our Price Contributor Network, where market participants anonymously submit wholesale transactions to be included in our weekly price assessments. It takes two minutes to join and two minutes to submit each week, and comes with loads of extra data and market intelligence.

As competition intensifies in the cannabis cultivation sector, Licensed Producers (LPs) continue to scrap existing indoor growing facilities and future development plans. With cost in mind, an increasing number of Canadian cannabis growers are shifting production capacity to outdoor operations. Outdoor cultivation has significantly lower operating costs relative to growing indoors or in a greenhouse, including lower infrastructure and labor costs, and no energy costs for lighting or HVAC needs.

 

The latest data from Statistics Canada shows outdoor cannabis cultivation capacity expanding at a consistent rate, while indoor space is on a decline. As of December 2020, there were 628 hectares licensed to grow cannabis outdoors. This is a massive jump relative to the same period last year.  Over the 12 months, outdoor cannabis cultivation capacity grew by 396 hectares or 270%. 

Source: Cannabis Benchmarks

The next chart takes the same data and standardizes the units to square feet. While this chart does not reflect the amount of actual cannabis production, since an indoor-grow will have multiple harvests annually, compared to one per year outdoors, it does show the dramatic shift towards outdoor production.

Source: Cannabis Benchmarks

Here we clearly see the growing disconnect between outdoor and indoor cultivation. This makes sense when one considers that legal markets have a growing inventory problem that can only be solved by either reducing supply or increasing demand. Regarding the latter, it is likely more straightforward in the near term for the legal market to attempt to take the share of existing demand captured currently by the illicit market, rather than convert individuals who never used cannabis previously to being regular consumers. 

 

Outdoor cultivation’s lower production cost makes it more competitive with illicit supply, but the resulting cannabis is frequently perceived to be of lower quality. As a result, significant portions of outdoor-grown product might not be as marketable for smoking in its raw form, relative to indoor-grown flower. However, outdoor-grown cannabis is very suitable as low-cost raw material for manufacturing cannabis 2.0 products such as edibles, beverages, and vapes. Such products are also typically less readily available from illicit sources and could bring existing consumers seeking novel products and experiences into the legal market. 


As we have noted in the past, outdoor cultivation does have risks. In Canada, weather can be responsible for destroying an entire harvest. On the other hand, the 628 licensed hectares could oversupply the market leading to lower prices and worsening economics for cultivators. This past October we saw a massive bump in unpackaged supply. From September to October we saw a 66% month-over-month jump in nationwide production due to the outdoor harvest.

For more data and analytics like this, subscribe to the Cannabis Market Insights report developed in collaboration Nasdaq. This in-depth monthly report provides exclusive data and analysis on the legal cannabis industry, focusing largely on the Canadian cannabis market, as well as the cannabis equities market in the U.S.

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

30 April 2021 Copyright © 2021 New Leaf Data Services, LLC.  All rights reserved.

April 23, 2021

CANADA CANNABIS SPOT INDEX — April 23, 2021

CANADA CANNABIS SPOT INDEX (CCSI) 

Week Ending April 23, 2021
1

*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$5.75 per gram this week, down 1.0% from last week’s C$5.81 per gram. This week’s price equates to US$2,083 per pound at the current exchange rate.

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

If you have not already done so, we invite you to join our Price Contributor Network, where market participants anonymously submit wholesale transactions to be included in our weekly price assessments. It takes two minutes to join and two minutes to submit each week, and comes with loads of extra data and market intelligence.

This week we touch on the significant problems resulting from the monthly supply and demand mismatch in the Canadian cannabis market. Most commodities require strategically located storage to balance uneven patterns of supply or demand. For example, seasonally harvested row crops like wheat, corn, and soy bring the majority of their supply to market over a period of a few months, while demand is spread evenly throughout the year. Conversely, a commodity like natural gas sees seasonal demand fluctuations, as it is used heavily in the winter months to heat homes, while supply is produced consistently throughout the year. In both cases, lack of alignment in the timing of supply and demand necessitates economical storage facilities and distribution infrastructure.

 

In simple terms:

  • When Quantity Supplied > Quantity Demanded the excess supply goes into storage for later use;
  • When Quantity Supplied < Quantity Demanded  the supply shortfall comes from storage.

 

Not only does storage provide a physical container for the product, but it also helps manage price volatility by storing excess inventory at a reasonable cost.

Source: Quora.com

As an emerging commodity, supply and demand dynamics for cannabis are still coalescing and evolving, making decisions about production capacity, storage, and distribution needs difficult to assess. However, with Canada’s regulated market open for business for over two years now, operators can examine trends in supply and demand, and begin to make more informed decisions that should help move the market closer to equilibrium. 

 

Demand for cannabis sold through legal channels has been growing at a rapid rate, as the regulated market is both attracting new customers and drawing in existing consumers who previously purchased from illicit sources. However, the increased demand has not to this point been nearly sufficient to absorb the staggering, and still-growing, supplies generated by cultivators. Oversupply in Canada’s legal market came initially from Licensed Producers (LPs) overshooting indoor growing capacity; it has been exacerbated by increasing outdoor production capacity, which has led to supply peaking in October in each of the past two years.

Source: Cannabis Benchmarks

The mismatch between production and consumption has resulted in a huge oversupply of both packaged (finished) and unpackaged (unfinished) products across the country. Statistics Canada’s most recent data for November 2020 shows unpackaged and packaged inventory ballooning to 1,165,725 kg, representing over 38 months of supply at current demand levels.

Source: Cannabis Benchmarks

Our current forecast for cannabis sales projects monthly spending to reach C$433M by the end of 2021. If we assume an average annual alcohol sales growth of 1.5% each year, then we can expect monthly alcohol sales to reach C$2.33B by end of the year. At those levels, cannabis sales would grow to represent 16% of the total spend on the two categories.

For more data and analytics like this, subscribe to the Cannabis Market Insights report developed in collaboration Nasdaq. This in-depth monthly report provides exclusive data and analysis on the legal cannabis industry, focusing largely on the Canadian cannabis market, as well as the cannabis equities market in the U.S.

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

23 April 2021 Copyright © 2021 New Leaf Data Services, LLC.  All rights reserved.

April 16, 2021

CANADA CANNABIS SPOT INDEX — April 16, 2021

CANADA CANNABIS SPOT INDEX (CCSI) 

Week Ending April 16, 2021
1

*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$5.81 per gram this week, up 1.4% from last week’s C$5.73 per gram. This week’s price equates to US$2,101 per pound at the current exchange rate.

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

If you have not already done so, we invite you to join our Price Contributor Network, where market participants anonymously submit wholesale transactions to be included in our weekly price assessments. It takes two minutes to join and two minutes to submit each week, and comes with loads of extra data and market intelligence.

This week we examine whether legal cannabis sales in Canada have impacted alcohol sales. With the legalization of recreational cannabis in October 2018, alcohol companies feared they would see a reduction in sales, as consumers of legal age may opt to substitute cannabis for alcohol. (In Canada, one must be 18 or older to purchase cannabis; for alcohol, the legal age varies between 18 and 19, depending on the province.) The Canadian government releases monthly retail sales data for both cannabis and alcohol (beer, wine, and liquor), which provides us with a better understanding of whether cannabis has actually had an impact on alcohol sales.


Below is monthly data from the start of 2016 through early this year showing sales of both categories. The chart illustrates that alcohol sales have been growing steadily despite the introduction of legal recreational cannabis sales in late 2018. Since January 2019, monthly alcohol sales have grown by C$219M to C$2.22B. Meanwhile, monthly legal cannabis sales have grown by almost the same amount – C$227M – to reach C$282M. 

Source: Cannabis Benchmarks

A review of Canadian census data for the 19+ demographic shows that the growth in alcohol sales is consistent with the growth in this population segment. Overall to this point, it appears that legal cannabis sales growth has not yet impacted alcohol sales negatively. Still, it should be noted that the COVID-19 pandemic – and associated lockdowns, including restrictions on and / or closures of bars and restaurants – provided anomalous conditions that almost certainly boosted alcohol sales higher than they might have been had the pandemic not occurred. This can be seen in the spike in alcohol sales that occurred in March 2020, as lockdowns were put in place across Canada. We have in previous reports detailed our reasoning regarding how the pandemic also resulted in a boost to legal cannabis sales.  

 

Going forward, we do believe that at some point cannabis sales will impact alcohol sales. Consumers have a finite amount of money to spend in this category, and increased accessibility and education around cannabis may lead to larger proportional expenditures for the newly-legal intoxicant. Indeed, this is occurring already. As shown in the chart below, cannabis sales are starting to represent a larger portion of the total dollars spent towards alcohol and cannabis. Currently, cannabis’ share stands at 11.3% of the total spend of the combined categories. 

Source: Cannabis Benchmarks

Our current forecast for cannabis sales projects monthly spending to reach C$433M by the end of 2021. If we assume an average annual alcohol sales growth of 1.5% each year, then we can expect monthly alcohol sales to reach C$2.33B by end of the year. At those levels, cannabis sales would grow to represent 16% of the total spend on the two categories.

For more data and analytics like this, subscribe to the Cannabis Market Insights report developed in collaboration Nasdaq. This in-depth monthly report provides exclusive data and analysis on the legal cannabis industry, focusing largely on the Canadian cannabis market, as well as the cannabis equities market in the U.S.

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

16 April 2021 Copyright © 2021 New Leaf Data Services, LLC.  All rights reserved.