April 3, 2020

CANADA CANNABIS SPOT INDEX — April 3, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published April 3, 2020
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*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$6.52 per gram this week, up 2.9% from last week’s C$6.33 per gram. This week’s price equates to US$2,096 per pound at the current exchange rate.

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Time to Shine


Most, if not all, licensed cannabis producers have not seen the level of sales they had expected since the recreational market opened in October 2018. The higher prices and lack of accessibility to legal sources of product have led to weaker-than-projected demand for licensed producers. As we have reported in the past, we believe roughly 80% of cannabis consumed in Canada still comes from the illicit market, but that might be changing quickly.

 

Since the COVID-19 pandemic reached Canada, universities and colleges have closed, businesses have instituted work-from-home programs, and unemployment has skyrocketed. At the same time, the sale of cannabis in legal channels has spiked across the country. In most provinces, cannabis is now considered an essential business, meaning cannabis retailers will remain open as most other businesses close their doors. Additionally, the Government of Canada has listed cannabis for medical use an essential service at the federal level. We believe that the unprecedented restrictions that have been put in place to contain the coronavirus present a unique set of circumstances that will benefit legal cannabis producers, at least in the short term. 

 

Social or physical distancing is likely to modify purchasing habits. Experienced cannabis users who have continued to buy products from their local illicit dealer may now prefer to purchase cannabis through legal channels – either online or at a physical retail location – rather than risk paying cash for untested product from unknown sources, delivered by someone who is essentially a travelling salesman. Simply getting these consumers in the door of a legal store or ordering through a legal website could be the game-changer that the industry needs. Consumers may now be more attracted to legal channels with a wider variety of tested, traceable products and the ability to pay electronically. Online sales should be particularly strong as consumers stay home and purchase goods remotely for delivery. This could create a structural shift to the legal markets, possibly resulting in increased sales for licensed producers that continue after the virus abates.

   

 

We have updated our sales forecast from our pre-COVID-19 base case. We believe the cannabis industry will see a spike in sales in March, which will help cushion the drop in sales expected in April and May. Our base case assumes that life returns to normal in June, with many of the stores that were expected to open in April and May pushed back to the summer, and a new consumer base formed at the expense of the illicit cannabis market.

 

Source: Cannabis Benchmarks

Our pre-COVID-19 base case showed total recreational Canadian cannabis sales reaching C$2.4B in 2020. Despite a dip in sales in April through June, we believe the cannabis industry will generate higher revenues this year. Our post-COVID-19 base case shows total recreational cannabis sales climbing to C$2.5B this year, which is more than double the C$1.2B in sales recorded in 2019.

Source: Cannabis Benchmarks

Our downside case, which assumes the economy does not recover quickly, shows sales coming in at C$120M, or 5% below the pre-COVID-19 base case. Our upside case, where the economy bounces back and customers switch to the legal markets, shows sales approximately 11.5%, or C$280M, higher than the pre-COVID-19 base case.

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

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

March 27, 2020

CANADA CANNABIS SPOT INDEX — March 27, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published March 27, 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, down 0.6% from last week’s C$6.37 per gram. This week’s price equates to US$2,010 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.

Illegal to Essential

 

As the coronavirus crisis deepens in Canada, the regulatory and business landscape continues to change rapidly. Each province has made countless moves to contain COVID-19. At this point, most provinces have declared a “state of emergency” or a “public health emergency.” This led to a massive spike in medical and recreational cannabis sales over the past week as consumers stocked up on products ahead of any potential availability issues or retail store closures. 

 

The cannabis industry has already faced many challenges this year and closures to any part of the supply and distribution chain would be difficult to overcome. Canadian cultivators and retailers have already been struggling ahead of the pandemic, as they compete directly with lower priced and more accessible illicit markets. The same goes for ancillary businesses – including processing, packaging, distribution, delivery, and maintenance – that rely on continuous business operation to keep afloat.

 

In today’s report, we look at how each province is dealing with cannabis businesses and whether the provinces have qualified cannabis operations as essential services that will be allowed to operate as the country begins to mandate business closures, lay-offs, mandatory quarantine, and work from home programs. 

 

Alberta
The Alberta Government has declared a public health emergency but has not recommended that any business or workplace close. At this point the Alberta Gaming, Liquor and Cannabis Commission (AGLC) is allowing liquor and cannabis retail stores to remain open, but the province is presently reviewing potential additional measures, including further restrictions on businesses. As of now, Alberta has not produced a list of essential businesses.

 

British Columbia (BC)

BC has ordered a mandatory closure of all non-essential businesses, such as dine-in restaurants and personal services. The Public Safety Minister encouraged businesses that are listed as essential to follow the advice of the provincial health officer. Cannabis retailers and producers have been deemed essential under the food and agriculture service providers listing.

Ontario

The Ontario Government ordered the mandatory closure of all non-essential workplaces, effective March 25. This closure will be in effect for 14 days and may be extended. Cannabis retailers and producers will remain open, as they are listed as essential under the retail and wholesaling category.

Quebec
The Quebec Government has announced the closure of all non-essential businesses until April 13. This measure went into effect as of March 25. Quebec has listed cannabis retailers as an essential business. The provincial-run SQDC outlets will remain open, but will limit the number of customers permitted at any given time and will only process non-cash payments.

 

Saskatchewan

The Saskatchewan Government released a comprehensive list of critical public services and business services that will be allowed to continue operations on March 26. Cannabis retailers are amongst the critical businesses allowed to remain open.

 

Manitoba

The Manitoba Government is developing a list of essential businesses. At the moment, cannabis stores remain open, but it is still uncertain if they will be deemed an essential service.

Nova Scotia

The Nova Scotia Government declared a state of emergency on March 19, ordering any non-essential services to close. The provincial-run Nova Scotia Liquor Corporation has been allowed to remain open.

New Brunswick
The New Brunswick Government declared a state of emergency on March 19, ordering any non-essential services to close. Cannabis retailers are recognized as essential businesses and will remain open. 

 

Prince Edward Island (PEI)
The PEI government has taken the strongest actions of all provinces by closing all provincial-owned liquor and cannabis stores.

 

Newfoundland and Labrador
The Newfoundland and Labrador Government has declared a public health emergency. Cannabis retailers were not recognized as an essential service. All stores were closed on March 26.

 

Online sales from the provincial-run stores will still be allowed. The only change will be that Canada Post will discontinue home delivery as it will not be accepting signatures at one’s door, but customers may pick up their packages from a local post office.

 

 

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

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

March 20, 2020

CANADA CANNABIS SPOT INDEX — March 20, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published March 20, 2020
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*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$6.37 per gram this week, down 3.1% from last week’s C$6.58 per gram. This week’s price equates to US$2,035 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.

The Cannabis Industry and COVID -19

Sales of cannabis have been steadily growing over the past year. The latest data from Health Canada tallies the total September 2019 non-medical and medical sales at approximately 13,000 kilograms. We project that volume has increased to approximately 14,000 kilograms last month as more retail locations opened across the country, especially in key provinces such as Ontario.

Source: Cannabis Benchmarks

March daily sales are likely to be volatile with COVID-19 hitting our side of the world. The extreme measures of self-isolation, work from home, and social distancing have actually resulted in increased sales for the cannabis industry. Over the past week, cannabis users have been stocking up on cannabis in every province. It has been reported that there are lines at dispensaries across Toronto, while online sales have spiked. The Ontario Cannabis Storage (OCS) stated they had processed 80-100% of typical sales volumes earlier in the week as consumers are choosing home delivery over going out to a physical store. Similar reports are being heard from provincial bodies and local retailers across the country. 

 

Even with these spikes in sales, Canada seems to be prepared. There will likely be no shortage of product, as expanding production capacity has led to growing inventory of packaged goods. The latest Health Canada report shows 66,000 kilograms of packaged goods in inventory as of the end of November 2019.  If that amount of inventory was still in place today, that is enough cannabis to meet 4.7 months worth of demand.

Source: Cannabis Benchmarks

Going forward, however, we do not expect sales to be as robust. In fact, April sales might be a bit rocky. We are still in the early stages of Canada’s response to the growing threat from COVID-19, and more extreme measures are being taken by some companies and provinces. Cannabis retailers Superette and 23 shops owned by Canopy Growth announced earlier this week that they would close all of their physical retail locations. Canopy indicated they would still sell products online. Prince Edward Island announced that the province’s liquor and cannabis stores would be closed effective yesterday. Other provinces have not yet taken such actions, but it is not out of the question as we observe similar responses from other countries around the world, as well as in some states in the U.S. Yesterday, California Governor Gavin Newsom announced that only limited businesses, including cannabis retailers, will be allowed to operate, but people are to “shelter-in-place,” or remain home unless absolutely necessary. Today, New York’s Governor Andrew Cuomo ordered New Yorkers to stay at home for the foreseeable future. Such a response in Canada could shut off both production and sales, whether through retail or online, of cannabis products.

For more data and analytics like this, please sign up to become a BETA client of our market fundamentals dashboard. Please click the link below to register and we will email you directly as our platform becomes available.

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

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

March 13, 2020

CANADA CANNABIS SPOT INDEX — March 13, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published March 13, 2020
image1

*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$6.58 per gram this week, up 2.8% from last week’s C$6.40 per gram. This week’s price equates to US$2,179 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.

All Eyes on Ontario

 

We continue to keep a close eye on the expansion of cannabis retail stores in Ontario. Today we are reporting 40 active stores in Canada’s most populous province. This is a 29% increase from last month, but still only accounts for 5% of the 807 stores open across Canada.

Source: Cannabis Benchmarks

Ontario has had the slowest roll out of stores among all provinces, especially considering the vast market it could be serving. All Canadian licensed producers (LPs) have blamed the sluggish roll out of retail stores in Ontario as the major reason for their lagging financial performance. With immense pressure from the public and the major LPs, the provincial government finally acted late last year by abandoning the lottery system for awarding new retail licenses. This was a positive move for the industry as Ontario’s slow roll out of retail shops had depressed legal cannabis sales and kept customers going back to illegal sources. 

 

The new stores that have opened year-to-date are part of Ontario’s second lottery that was conducted in August 2019. With today’s count, there are now 15 new stores of the 42 licenses issued opened in Canada’s largest province; as indicated, there are more to come from that licensing round.

 

Additionally, the next wave of licensing retail stores looks to be in the pipeline and could start as early as Q2 2020. From data received from the Alcohol and Gaming Commission of Ontario (AGCO), we were able to get a glimpse of the number of stores that will be coming soon. The online status report takes all the applications and distributes them in one of the following categories:

 

  • In Progress – this status indicates that the AGCO has received the application and the process is underway. 

  • Public Notice – this indicates an application has been successful, and the provincial government is now accepting written submissions for 15 days for a specific location from residents of that municipality.

  • Authorized to Open – this indicates that the store has met the regulatory requirements and has passed its pre-opening inspection from the AGCO. 

 

Based on the data, it appears that Ontario could have a total of at least 177 cannabis stores. The timing of authorized store openings is set by the individual store operators; therefore we estimate that this number is not achievable until late summer.

Source: Cannabis Benchmarks

The map below from the AGCO website shows the locations of currently open and authorized to open shops. The green pins represent the former, while the gray ones designate the latter. As can be seen, the vast majority of stores are concentrated in the Greater Toronto area.

Source: AGCO

For more data and analytics like this, please sign up to become a BETA client of our market fundamentals dashboard. Please click the link below to register and we will email you directly as our platform becomes available.

If you missed our announcement last week:

We are pleased to share that Cannabis Benchmarks® has begun disseminating its Canada cannabis index data through Nasdaq’s GIDS service. These unbiased indexes provide a variety of benefits for this emerging commodity, including:

 

– making it easier to reference the market value of product in buy/sell negotiations,
– writing spot and forward contracts on a published index,
– third-party validation for asset valuation (e.g., biological assets), and
– paving the way for more sophisticated financial instruments for hedging, trading, and risk management (e.g., swaps, futures, and other derivative contracts).


Click to read the full press release: Cannabis Benchmarks® Distributes its Canada Cannabis Pricing Indexes on Nasdaq Global Index Data Service

Are you a licensed market participant in the U.S. or Canada? 

Do you support wholesale market transparency?

Become a member of our Price Contributor Network and receive discounted pricing and exclusive analysis!

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

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

March 6, 2020

CANADA CANNABIS SPOT INDEX — March 6, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published March 6, 2020
image1

*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 0.6% from last week’s C$6.36 per gram. This week’s price equates to US$2,169 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 analyze household consumption expenditure data from the Canadian government. Household consumption expenditure data monitors on a quarterly basis the final spend made by Canadian residents to meet their everyday needs, such as food, clothing, housing, energy, transport, health costs, leisure, and miscellaneous services. It is typically around 60% of gross domestic product (GDP) and is therefore an essential variable for economic analysis of demand. Starting last year, the Canadian government started issuing the quarterly spend on cannabis alongside alcoholic beverages and tobacco. In the chart below, we have aggregated the cannabis spend for medical, legal recreational, and illicit products. Interestingly, all three product categories illustrated below observed steady to slightly rising sales over the past 12 quarters, or three years. Our thought was that the legalization of cannabis would have cut into the alcoholic beverages sales, but so far that has not been the case. From 2018 to 2019, the total spend on alcoholic beverages increased by 2.6%, while the cannabis spend increased by 3.6%.

Source: Cannabis Benchmarks, Statistics Canada

In terms of 2019 recreational use (not including cannabis sold for medical use), cannabis made up only 11% of the total dollars spent. Spending habits are likely to change in 2020 with the introduction of Cannabis 2.0 products, such as vapes, beverages, and edibles.

Source: Cannabis Benchmarks, Statistics Canada

Focusing only on cannabis expenditures in Canada, we can see how spending has shifted in this category. The data shows that the total cannabis spend has been between roughly C$1.4 – C$1.5 billion each quarter since 2017.

Source: Cannabis Benchmarks, Statistics Canada

From this data we notice a few key points.

  1. The medical spend has stayed quite consistent at around C$150M per quarter, despite Statistics Canada reporting a decline in medical cannabis sales volumes as consumers turn to the legal recreational market for their supply. 

  2. The total legal recreational cannabis spend increased on average by 7% from the pre-legalization period to the legal cannabis markets that started in Q4 2018. This increase is a result of legal cannabis being more expensive, as well as a growing base of legal cannabis consumers with more access to legal outlets.

  3. In 2019, the illicit market accounted for 71% of all cannabis sales.

  4. Lastly, since cannabis legalization, the legal markets have consistently been taking market share from the illicit markets, although at a decreasing rate. Below is a chart that shows the quarter-on-quarter (QoQ) change in recreational cannabis expenditure. The mirror image verifies that as the illicit cannabis spend drops each quarter, it is converted to the legal markets.

Source: Cannabis Benchmarks, Statistics Canada

For more data and analytics like this, please sign up to become a BETA client of our market fundamentals dashboard. Please click the link below to register and we will email you directly as our platform becomes available.

If you missed our announcement last week:

We are pleased to share that Cannabis Benchmarks® has begun disseminating its Canada cannabis index data through Nasdaq’s GIDS service. These unbiased indexes provide a variety of benefits for this emerging commodity, including:

 

– making it easier to reference the market value of product in buy/sell negotiations,
– writing spot and forward contracts on a published index,
– third-party validation for asset valuation (e.g., biological assets), and
– paving the way for more sophisticated financial instruments for hedging, trading, and risk management (e.g., swaps, futures, and other derivative contracts).


Click to read the full press release: Cannabis Benchmarks® Distributes its Canada Cannabis Pricing Indexes on Nasdaq Global Index Data Service

Are you a licensed market participant in the U.S. or Canada? 

Do you support wholesale market transparency?

Become a member of our Price Contributor Network and receive discounted pricing and exclusive analysis!

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

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

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