August 14, 2020

CANADA CANNABIS SPOT INDEX — August 14, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published August 14, 2020
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$6.23 per gram this week, down 1.6% from last week’s C$6.33 per gram. This week’s price equates to US$2,126 per pound at the current exchange rate.

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This week we provide an update on the growing stockpiles of cannabis held in federal and provincial storage facilities, and compare it to the inventory that is piling up on the balance sheets of two major licensed producers. 

 

Statistics Canada released data showing both unpackaged and packaged inventory for May 2020. The trend of expanding unpackaged inventory continued – as shown in the blue area below – but May saw packaged inventory buck the trend with a small decrease. Could this be the first sign of national production slowing? In our opinion, it is a bit too early to tell from this data alone.

Source: Statistics Canada, Cannabis Benchmarks

To get more insight on production and inventory, we turn to data reported this past week in quarterly earnings released by Canopy Growth and Tilray.

 

Both companies report the total kilograms harvested and sold each quarter. In the charts below, we show each company’s cannabis harvest volumes (solid line) and sales volumes reported for each quarter (dashed line). Both companies, but especially Canopy, experienced significant supply-demand disconnects through much of 2019. We can see cultivation peaked in mid-2019 and has been declining since for both companies, with reduced facility utilization and closures. For example, Canopy reported closing greenhouses in British Columbia in Q1 2020 to reduce the supply glut. Still, the supply-heavy imbalance has continued into 2020 for Canopy, while production and sales for Tilray have lined up more closely since the end of 2019. 

(Y axes represents kg equivalent in 1,000s)

Source: Canopy Growth Earnings, Tilray Earnings, Cannabis Benchmarks

Any product that is not sold is either put into inventory or written off (destroyed). The companies are not as forthcoming with that information, but we can get a glimpse by diving into their balance sheets. The balance sheets report inventory as a dollar value, rather than total volume stored; hence it is not a direct comparison to unpackaged/packaged inventory reported in kilograms by Statistics Canada. That being said, the trend in inventory growth should be very close.  

(Y axis represents kg equivalent in 1,000s)

Source: Canopy Growth Earnings, Tilray Earnings, Cannabis Benchmarks

The chart shows the two companies’ inventories growing at a similar pace to that reported by Statistics Canada in 2019, but that has not been the case in 2020. Our guess is that inventory volume has continued to grow, but dropping market prices are hitting the value of the inventory. With more inventory at a lower price, the inventory line items on the companies’ balance sheets appear to have flatlined.

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 August 2020 Copyright © 2020 New Leaf Data Services, LLC.  All rights reserved.

August 7, 2020

CANADA CANNABIS SPOT INDEX — August 7, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published August 7, 2020
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$6.33 per gram this week, up 0.7% from last week’s C$6.28 per gram. This week’s price equates to US$2,149 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 provide an update on store counts and sales. The Canadian cannabis industry is growing up with more than one thousand retail outlets now open across the country. This is an immense milestone, as there were only 361 stores open at the end of July 2019. With the increased physical retail presence, cannabis is becoming more visible and, presumably, more normalized in Canadian society.

 

To be exact, we count 1,012 licensed retailers, with an average monthly growth rate of 6% in 2020. This solid growth rate comes despite many store applications and openings being delayed due to COVID-19 shutdowns. The 50 store increase in July was distributed almost equally across Alberta, British Columbia, and Ontario. However, Alberta store counts seem to be hitting a saturation point, while Ontario store openings are taking off after a slow start.

Source: StatsCan, Cannabis Benchmarks

However, simply looking at licensed growing areas does not provide a good estimate of monthly production. The yields of indoor and outdoor operations can vary quite widely depending on the grower, plant genetics, climate conditions, and other factors. And, to add to that, not all of the licensed production capacity is currently online and operational. Some of it is newly licensed with no production occurring yet, while other licensed facilities that were in operation have been taken offline due to bad economics.

 

Outdoor growing is somewhat new in Canada, where the market to this point has been supplied primarily by indoor and greenhouse production. There are obvious benefits to both grow methods. Outdoor cultivation offers cheaper cannabis with the use of natural light and low-cost land, while growing in controlled indoor or greenhouse environments can produce a more consistent year-round product, but at significantly higher cost. Estimates from cultivators suggest cannabis grown outdoors could be produced for less than C$0.20/gram, while production costs for indoor and greenhouse growing range between C$0.80/gram and C$2.00/gram.

 

The expansion of outdoor production seems positive for the consumer, but raises both potential drawbacks and benefits for the supply side of the market. Most outdoor-grown cannabis is harvested in October, with some variability due to weather and different maturation periods for various varieties. With the Canadian cannabis market already facing a major supply glut, the seasonal surge of supply that comes with outdoor harvests could exacerbate that issue. 

 

The seasonality and variability of outdoor production may also result in increased price volatility, particularly in the initial seasons of outdoor growing when operations are honing their approaches and consumer demand for legal cannabis is still expanding. In legal cannabis markets in the western U.S., such as Oregon, bumper crops of outdoor cannabis in the autumns of 2017 and 2018 – the first two full years after the state’s legal adult-use market opened – caused dramatic wholesale price erosion. However, rates have recovered and stabilized beginning in the second half of 2019, partially due to growing consumer demand. 

 

Potential inconsistency in product quality and variabilities in production volume year-to-year due to weather, pests, and other factors may also make it difficult to fulfill fixed-volume provincial sales contracts. Again, though, as licensed producers dial in cultivation methods over the course of several seasons, some of that variability can be minimized.

 

Finally, it should be noted that significant amounts of outdoor-grown cannabis will likely be devoted to extraction and infused product manufacturing, as it is in legal U.S. markets. This should lessen the impact of Canada’s expanding outdoor production on the country’s oversupply of trimmed, smokable flower. It should also provide lower-cost raw material from which cannabis 2.0 products can be manufactured, presumably resulting in lower prices for consumers. While the current supply-demand imbalance is still worrisome and will likely continue to grow with expanded outdoor production, increased supply of more reasonably priced cannabis 2.0 products could also help grow demand by bringing more consumers into the legal market.

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 August 2020 Copyright © 2020 New Leaf Data Services, LLC.  All rights reserved.

July 31, 2020

CANADA CANNABIS SPOT INDEX — July 31, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published July 31, 2020
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$6.28 per gram this week, down 0.4% from last week’s C$6.31 per gram. This week’s price equates to US$2,128 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 provide an update on store counts and sales. The Canadian cannabis industry is growing up with more than one thousand retail outlets now open across the country. This is an immense milestone, as there were only 361 stores open at the end of July 2019. With the increased physical retail presence, cannabis is becoming more visible and, presumably, more normalized in Canadian society.

 

To be exact, we count 1,012 licensed retailers, with an average monthly growth rate of 6% in 2020. This solid growth rate comes despite many store applications and openings being delayed due to COVID-19 shutdowns. The 50 store increase in July was distributed almost equally across Alberta, British Columbia, and Ontario. However, Alberta store counts seem to be hitting a saturation point, while Ontario store openings are taking off after a slow start.

Source: Cannabis Benchmarks

With the expanded store presence, we are also seeing retail sales ramp up. Statistics Canada reported May 2020 sales last week, showing a record C$185.9M in revenue. This new monthly record is up C$7.5M from the month prior, and C$100M from the same month last year. 

 

So all in all, the industry seems to be moving in the right direction. We recalculated our 2020 total sales target this week. The last time we did this was right as COVID closures were setting in and cannabis 2.0 products were starting to hit the shelves. 

 

With many of those events now behind us, we have a better understanding of how all the moving pieces have impacted sales. We project sales will continue to increase each month as new stores open, more cannabis 2.0 products become available, and life returns closer to normal. Our modelling shows monthly sales surpassing C$200M in August and hitting a peak of C$219M in December. 

Source: StatsCan, Cannabis Benchmarks

Cumulative Canadian sales for legal retail cannabis in 2020 are set to hit C$2.28B. This is almost double 2019’s sales tally of C$1.19B, according to Statistics Canada.

Source: StatsCan, Cannabis Benchmarks

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

31 July 2020 Copyright © 2020 New Leaf Data Services, LLC.  All rights reserved.

July 24, 2020

CANADA CANNABIS SPOT INDEX — July 24, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published July 24, 2020
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$6.31 per gram this week, down 1.5% from last week’s C$6.40 per gram. This week’s price equates to US$2,121 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 provide an update on the ever-growing stockpiles of cannabis held in federal and provincial storage facilities. Earlier this month, Statistics Canada released data showing both unpackaged and packaged inventory ballooning to levels that point to potential inventory write-downs and financial distress for cultivators.

As of the end of April, total unpackaged inventory stood at 620,144 kg. This is product sitting with both cultivators and processors that is not yet ready for sale. Adding to that is 85,014 kilograms of ready-to-sell packaged inventory that is held by cultivators, provincial wholesalers, and retailers. These are outrageous numbers when we consider total Canadian consumption levels, which we detail just below. In no other major commodity market do we see such a large disconnect between supply and demand.

Source: Statistics Canada, Cannabis Benchmarks

So, let’s examine how we got here. The excess inventory is a result of massive mismatch between supply and demand. As Canada prepared to legalize recreational marijuana sales in Oct 2018, all the major Canadian cultivators planned to bring online an immense amount of growing capacity. This capacity slowly trickled into the market in 2019, which we can see in the unpackaged production figures reported by Statistics Canada. Monthly unpackaged production peaked in October 2019 at 144,955 kg, but has since stabilized to around 100,000 kg per month. Once the supply-demand imbalance became undeniable, cultivators began scaling back production and even went as far as closing growing facilities in some cases. 

 

Reality struck the market early with demand being only a fraction of the initial expectations. The illicit market continued to be robust and captured nearly 75% of total national cannabis consumption. That being said, with lower pricing and a growing retail footprint, we see demand expanding, but not at a pace sufficient to reach market equilibrium. Our estimates do show demand growing by 36% from September 2019 to April 2020, to 19,430 kg. At best this is about 20% of corresponding supply levels; hence the mismatch continues to grow each month.

Source: StatsCan, Cannabis Benchmarks

So the question remains: how will all this unsold cannabis be utilized? If all cannabis cultivation were to stop today, existing inventory could support 36 months of consumption, assuming demand holds at current rates. It is of course unlikely that cultivation will cease; the next major step is cannabis growers recognizing that most of this product will be unsaleable, which should lead to the destruction of product and write-downs.

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

24 July 2020 Copyright © 2020 New Leaf Data Services, LLC.  All rights reserved.

July 17, 2020

CANADA CANNABIS SPOT INDEX — July 17, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published July 17, 2020
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$6.40 per gram this week, up 2.8% from last week’s C$6.23 per gram. This week’s price equates to US$2,137 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 provide an update on the growth in licensed cannabis stores across Canada. We also highlight a new pilot program that one licensed retailer hopes will expand into a widespread strategy to drive increased traffic and sales. 

 

Nationwide, the licensing of new stores has slowed due to COVID-19 and accompanying lockdowns. After slumping in April and May, we are seeing new stores begin to proliferate more quickly once again. At the end of June, there were 962 stores across Canada, with 59 stores added since May, and an increase of 672 stores from the same time last year. During the first half of 2020, the average number of new stores that opened monthly was 49. This took place under the specter of COVID-19. With COVID-related restrictions loosening, we expect the number of new stores to increase at an even faster pace in the second half of the year.

Source: Cannabis Benchmarks

We could also soon see an explosion of new cannabis retailers if a plan to pair them with convenience stores proceeds fruitfully. In August 2019, the publicly traded convenience store operator Alimentation Couche-Tard invested in the cannabis retail chain Fire & Flower. Couche-Tard acquired a 9.9% stake in the retailer in July 2019 with options to increase its stake to 50.1%. At the time, there was much speculation that cannabis could one day be sold through convenience stores. 

 

Last week, we moved one step closer to this happening. The two companies are running a pilot project in Alberta that will see Fire & Flower cannabis stores co-located with Circle K convenience stores. The cannabis and convenience stores will be on the same property, but separated in order to follow strict provincial regulations, with different entrances and points-of-sale for each. The stores are fully owned and operated by Fire & Flower and the company’s hope is that they will benefit from the foot traffic drawn by the convenience store side.

Source: Fire & Flower

If successful, the two companies have already identified more locations where they could expand the pilot project, as seen in the graphic below. There are 2,131 convenience stores across Canada operated by Couche-Tard, and the model could potentially be expanded to the U.S., and perhaps globally in the future. Strategies such as this could be what legal Canadian cannabis businesses need to stamp out the illicit market.

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

17 July 2020 Copyright © 2020 New Leaf Data Services, LLC.  All rights reserved.

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