February 21, 2020

CANADA CANNABIS SPOT INDEX — February 21, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published February 21, 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$6.28 per gram this week, down 0.5% from last week’s C$6.31 per gram. This week’s price equates to US$2,151 per pound at the current exchange rate.


Company Announcement:

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– 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

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This week we look at how growth in the number of physical brick and mortar stores has been the key driver behind rising national cannabis sales. We now count 770 retail stores across Canada as of February, an increase of 47 stores from the previous month for a 6.5% growth rate.

Source: Cannabis Benchmarks, Statistics Canada

Alberta still has the highest store count with 420 stores, or 55% of the cannabis stores across Canada. As expected, Alberta, with the largest concentration of stores, has greater sales per capita than the other large provinces. While all other major provinces saw new store openings, this month was particularly important for Ontario. Stores from Ontario’s second lottery that was conducted in August 2019 opened this month. Six new stores of the 42 licenses issued opened in Canada’s largest province, which takes Ontario’s total to 31 retail outlets. 

 

As new stores have opened across the country, they have provided more convenient access to cannabis users who previously purchased from the illicit market or were pushed to the provincial online stores. This has been positive for the industry as the customer base continues to grow. We have heard from many cannabis users that the online experience is convenient, but they prefer walking into a store to see product variety, take in the aromas, and hear from experienced staff.

As seen in newly released data from Statistics Canada, the opening of new stores has coincided with a large drop in online sales as a proportion of overall revenue. At the onset of legalization, the lack of retail stores resulted in 44% of total sales coming from online provincial marketplaces. The latest data for September shows only 6% of sales coming from online stores.

Source: Cannabis Benchmarks, Statistics Canada

We project this downward trend in online buying to continue, and forecast monthly sales of $6.6M, or daily sales of $220,000, for all Canadian online stores for the month of November. We expect the growth in store counts, lower priced products, shrinking retail margins, and new cash and carry models will put immense pressure on provincial government run stores that continue to operate in the red. In our opinion, this could eventually lead to the privatization of online sales

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

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

February 14, 2020

CANADA CANNABIS SPOT INDEX — February 14, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published February 14, 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$6.31 per gram this week, down 1.3% from last week’s C$6.40 per gram. This week’s price equates to US$2,156 per pound at the current exchange rate.

 

The era of legal cannabis in Canada has been a bumpy ride for cannabis producers, consumers, and investors. The past year has been volatile and has seen collapsing valuations, high retail price points, dropping wholesale prices, lower-than-anticipated consumption, executive shake-ups, lay-offs, inventory write-downs, and corporate scandals. 

 

This week, the two largest Canadian licensed producers – Aurora and Canopy Growth – reported quarterly earnings for the period ending December 31, 2019. Rather than focusing on the financial results of the two mega-companies, we examine some of the fundamental metrics. In the latest reported quarter, both companies increased their production capacity and total sales. Aurora, which has been focusing on producing high-quality varieties and lowering total harvest costs, grew total quarterly output by 292% to 22,869 kg relative to the same quarter last year. 

 

Sales did not grow at the same pace, and in fact that has been one of the key contributors to the deteriorating financials and the decline in average net selling price. Sales from the same quarter last year have only grown by 36%, leading to excess supply going into inventory each month. Aurora’s cumulative inventory since legalization has ballooned by 68,657 kg. Based on their current sales rate, that is close to 22 months worth of supply.

 

Canopy Growth followed the same trend in at least the past five reported quarters. Canopy, the largest licensed producer in Canada, harvested 293% more than the same quarter last year, generating 29,900 kg. As with Aurora, sales grew at a significantly slower pace. Sales for the latest quarter reached 13,200 kg, or 31% higher than the same time last year. 

 

The gap between supply and sales has led to a massive inventory issue for Canopy, as well as lower selling prices. Supply in the latest quarter slowed to help ameliorate the inventory overhang, but Canopy’s cumulative product buildup since legalization commenced has grown by 79,600 kg. Based on their current sales rate, that is over 18 months worth of supply.

We recognize that 2020 sales will pick up with the opening of new stores, the launch of Cannabis 2.0 products, and increased consumer adoption, but will this be enough to balance the supply-demand fundamentals of this market? We expect to see similar results from many of the Canadian producers over the coming weeks, and potentially some inventory write-downs to help alleviate the rapid expansion in excess supply. As with other novel industries and commodities, cannabis in Canada is going through cycles of shortages and oversupply that should stabilize as the market matures.

Source: Cannabis Benchmarks, Aurora Cannabis and Canopy Growth quarterly earnings

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

February 7, 2020

CANADA CANNABIS SPOT INDEX — February 7, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published February 7, 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 0.2% from last week’s C$6.38 per gram. This week’s price equates to US$2,187 per pound at the current exchange rate.

 

This week we examine new data released by Statistics Canada. On January 31, officials published information on total cannabis cultivation area licensed in October 2019. Up until this report, only a single aggregate figure encompassing all grow types was reported. The previous reports showed that total production capacity climbed steadily through summer 2019.  

 

In the most recent report, for the first time, indoor and outdoor areas licensed for cannabis cultivation are reported separately. The data shows regulators have licensed roughly 13 million square feet of indoor and greenhouse production capacity, along with 19.4 million square feet for outdoor growing. 

The new data shows definitively for the first time that outdoor cultivation area is outpacing indoor grows. However, this does not necessarily translate into outdoor cannabis production generating a larger volume of flower and other plant material. Licensed cultivation areas, whether indoor or outdoor, might not be fully utilized at any given time. Also, indoor facilities can in some cases have a higher annual yield due to more dense plant spacing and the ability to achieve multiple harvests per year.

 

Regardless, outdoor operations should help Canada’s legal industry in its fight against the illicit markets that still provide an estimated 80% of the total amount of supply consumed nationally. Price has been one of the largest roadblocks to getting experienced consumers to switch to the legal markets. As we have seen in the Western U.S., outdoor-grown cannabis costs much less to produce; hence, it sells at a lower wholesale price point. Many Canadian licensed producers (LPs) at first lobbied against permitting outdoor operations, but have since jumped on the bandwagon of this growing method in the hopes of producing larger volumes at a very low cost. In addition to helping LPs become more price-competitive with illicit dealers, robust outdoor harvests can provide ample plant material that can be processed into extracts and infused products to service the growing Cannabis 2.0 industry. 

 

Although outdoor operations make complete sense based on the factors described above, it can be quite the gamble in Canada. As small and large LPs shift to increased outdoor production, we do expect downward pressure on wholesale prices, but also more volatility from seasonal supply fluctuations, as well as the general uncertainty regarding yield and product quality that naturally comes with growing outdoors.

Source: Cannabis Benchmarks

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

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

January 31, 2020

CANADA CANNABIS SPOT INDEX — January 31, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published January 31, 2020
CCSI 31Jan2020

*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$6.38 per gram this week, down 3.5% from last week’s C$6.61 per gram. This week’s price equates to US$2,209 per pound at the current exchange rate.

 

This week we examine new retail cannabis sales data reported by Statistics Canada. Last week, November 2019 sales were published. Canadian legal cannabis sales amounted to C$135M in November, up by 5.2% from October’s sales total. Despite showing some overall expansion from the prior month, digging into the numbers it is clear that all the sales growth came from one province – British Columbia (BC).

BC looks to be playing a bit of catch up, and the sales increase blew past our modelled expectations. This is a positive sign for the legal industry, because BC is regarded as one of the provinces with the strongest illicit market presence. The sales growth can be attributed to an exponential expansion in physical stores across the province. BC sales in November 2018 were only C$1.1M; November 2019’s sales of C$19M shows 1,666% growth over the year.

Source: Cannabis Benchmarks

Alberta retail cannabis sales have climbed steadily since legalization. As we reported last week, Alberta has been seen as the most liberal and forward-looking province for making legal cannabis available to users. The Alberta government’s framework to license and regulate cannabis retailers has been simple and quick; hence has been more successful that other provinces in stamping out the illicit market. Alberta sales in November 2018 were C$11.2M, November 2019’s sales of C$29.8 represent a rise of 166% year-over-year.
Quebec has been another province that has successfully grown sales over the first year of legalization. Quebec’s goal since initiation was to keep taxes and prices low to beat out the black market. Quebec sales in November 2018 were C$11.9M in total; November 2019’s C$29.8 in sales constitutes an increase of 151% over the year.
Lastly, we turn to Ontario. Ontario, Canada’s most populous province, receives a lot of attention from cannabis investors. In fact, most LPs blamed the sluggish roll out of retail stores in Ontario as the major reason for their lagging financial performance. Ontario’s slow roll out of retail shops (there are only 25 in the province currently) has hurt overall cannabis sales and kept customers going back to the illegal sources. As seen in the chart below, sales were very low until April 2019, with cannabis only offered through the online Ontario Cannabis Store prior to that month. After April 2019, sales climbed steadily as the current stores opened, but growth stalled in late summer. With the Ontario government facing immense pressure they have abandoned the lottery system for awarding new retail licenses, but the impact of more easily obtained stores licenses and sales is not expected until early Q2. Ontario sales in November 2018 were C$8.9M; November 2019 sales of C$31.6 show a rise of 254% from a year ago.

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

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

January 24, 2020

CANADA CANNABIS SPOT INDEX — January 24, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published January 24, 2020

*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$6.61 per gram this week, up 2.3% from last week’s C$6.46 per gram. This week’s price equates to US$2,292 per pound at the current exchange rate.

This week we examine the potential cannabis market landscape in Alberta through the end of 2020. A Statistics Canada survey estimates 662,000 cannabis users in Alberta, or roughly 18.8% of the province’s adult population. In many ways, Alberta has been seen as the most liberal and forward-looking province for making legal cannabis available to users. The Alberta government’s framework to license and regulate cannabis retailers has been simple and quick, similar to the way it operates liquor stores.

Our latest cannabis store count puts Alberta well ahead of the rest of the country with 55% of Canada’s cannabis retailers located in the province. Accessibility has been one of the biggest impediments to the growth of legal cannabis sales in Canada, but Alberta’s unique approach has been effective in driving sales into the legal market. We have reported in the past that roughly 80% of cannabis across Canada is still being purchased in the illicit market, but Alberta looks to be doing better than the other provinces on that front. Kelley Holmes, the manager of cannabis account services for the Alberta Gaming, Liquor, and Cannabis Commission (AGLC), recently stated that “Colorado, during its first year of legalization … had around 15% of the market move to the legal market;” but, in Alberta, Holmes estimates the proportion is between 25% and 30%.

Source: Cannabis Benchmarks

As we have established in past reports, there is a very strong relationship between retail sales levels and the number of cannabis stores in a province. Accordingly, Alberta has one of the highest per capita sales levels. We project the number of stores will continue to grow and estimate that by December 2020 there will be 668 stores open across Alberta, with 292 more stores opening over the course of the year, for a growth rate of 78%.

 

Increased sales will come with growth in the number of stores. Cannabis Benchmarks projections for retail cannabis sales in Alberta and the number of licensed storefronts projected to open each month through the end of 2020 are illustrated in the charts below.

Source: Cannabis Benchmarks

As of the last retail report from the Government of Canada, Alberta’s monthly sales for September and October averaged C$27M. We are now forecasting legal retail cannabis sales in Alberta to average C$37M per month in 2020, with the addition of the new retail locations and Cannabis 2.0 products, generating C$40.5M in sales by December 2020. 

In total, we forecast C$441M of sales in Alberta in 2020, with Cannabis 2.0 products expected to be C$61M, or 14%.  

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

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

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