September 11, 2020

CANADA CANNABIS SPOT INDEX — September 11, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published September 11, 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$6.38 per gram this week, up 3.7% from last week’s C$6.15 per gram. This week’s price equates to US$2,201 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 show our revised sales forecast for Ontario in light of the province’s Alcohol and Gaming Commission (AGCO) issuing a statement on September 1 regarding Cannabis Retail Store Authorizations. 

 

Last December, after pressure from the cannabis industry, the Ontario government altered its retail store licensing process from a lottery system to a more open format. The goal was to issue up to 20 retail store licenses each month starting in April. At Cannabis Benchmarks, we conduct a monthly store count across each province. We have seen a significant uptick in new stores in Ontario since April, with an average of 16.6 stores opening each month. This number does not meet the target AGCO set out, but the lower number was not unexpected given the COVID-19 pandemic. As of the end of August, we count 136 stores open across Ontario.

Source: Cannabis Benchmarks, Statistics Canada

In the recent update, AGCO stated that they are now moving to “double the pace of store authorizations this fall.” This suggests that we may see, on average, up to 40 new stores each month through the end of the year, increasing our forecast of the total store count in Ontario and, as a result, our sales forecast as well. We now expect there will be 298 stores open across Ontario by the end of the year, compared to only 27 stores at the end of 2019.

 

As we have noted in the past, there is a very strong relationship between the number of open stores and the monthly retail sales in each province. Each new store provides better accessibility to the legal cannabis market and helps pull consumers away from the still robust illicit market. The latest sales data for June 2020 issued by Statistics Canada shows Ontario cannabis retail sales totaling C$48.8M in the month with 116 stores open. Our latest forecast shows sales growing dramatically with the new store openings, bringing December sales to C$73.3M and total Ontario sales for 2020 to C$645M.

Source: Cannabis Benchmarks, Statistics Canada

The Ontario cannabis market is very important to the overall Canadian cannabis industry due to the province’s large population. Ontario has nearly 40% of the overall Canadian population and 38% of the total self-reported users; hence any change to product offerings, product pricing, or accessibility in the province makes a dramatic difference in overall nationwide sales levels. Our models show that the projected increase in stores in Ontario will add roughly $13M in additional sales by the end of the year. This takes our projected monthly Canadian sales to C$251M in December, with projected annual sales for 2020 totaling C$2.45B.

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

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

September 4, 2020

CANADA CANNABIS SPOT INDEX — September 4, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published September 4, 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$6.15 per gram this week, down 2.1% from last week’s C$6.28 per gram. This week’s price equates to US$2,133 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 outline recent data from Health Canada on the growing Canadian industrial hemp industry. Recently released 2019 statistics detail the number of active industrial hemp licenses for cultivation, registered hectarage, and the type of hemp cultivated in each province.

 

The Industrial Hemp Regulation (IHR) Program permits farmers to grow low-THC cannabis for industrial use. Industrial hemp has been proven to be a fibrous, fast growing, and high yield crop that has also shown good potential for crop rotation. Its short growth period, averaging 100 days, makes it well-suited for the shorter outdoor cultivation season in many parts of Canada – especially in the Prairie provinces, as seen in the data below.

 

The data reflects the changes in the hemp industry across Canada. From 2018 to 2019, we saw a modest increase of only 20 hemp cultivation licenses nationwide. Most major provinces saw a dramatic decrease in cultivation licenses, with the exception of British Columbia and Ontario. The reason we see dramatic fluctuations in provincial licensing numbers is likely due to the relatively flexible window that growers have to apply for a license. Applications are accepted as early as mid-November for a license that will be good through the end of the following year. However, most farmers need not apply until they are ready to harvest. Consequently, depending upon the point in any given year that licenses are counted, the numbers could be different and not entirely representative of the number of farmers growing hemp.

Source: Hemp Benchmarks, Health Canada

Registered hectarage also grew year-on-year, with a 19% jump to 37,435 hectares in 2019. As alluded to above, licensing data does not necessarily correspond to registered hectarage in each province. In Ontario and BC, for example, registered hectarage was negligible for 2019 even though roughly 26% of cultivation sites are registered in those provinces. The main provinces to register hemp cultivation sites and hectarage are Alberta, Saskatchewan, and Manitoba.

Source: Hemp Benchmarks, Health Canada

Finally, we look at the breakdown of the types of hemp cultivars planted across Canada. Cultivation for flowering heads, leaves and branches – in other words, varieties high in CBD and other non-THC cannabinoids – was the most prominent, accounting for 42% of the planted hectarage, followed by grain, then fiber. Only 3% of the hectarage was planted for seed. 

 

This data was not available for 2018, so we cannot analyze exactly how this might have changed year-on-year. However, an overview of the Canadian hemp industry published last year by the U.S. Department of Agriculture’s (USDA’s) Foreign Agricultural Service notes that, as of the end of 2018, “high-CBD varieties have yet to be registered for use in Canada.” The USDA report, combined with Health Canada’s 2019 data, suggests that hectarage registered for high-CBD varieties may have gone from nonexistent in 2018 to the most prevalent production target in the country in 2019. 

Source: Hemp Benchmarks, Health Canada

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

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

August 28, 2020

CANADA CANNABIS SPOT INDEX — August 28, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published August 28, 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 2.8% from last week’s C$6.47 per gram. This week’s price equates to US$2,166 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 look at the state of the Canadian medical cannabis market since recreational legalization. The medical cannabis sector faces stiff competition from both the legal recreational market and the still-robust illicit market. That being said, medical cannabis is still a significant area of focus for many of the large cultivators, which can be seen in their financials. For example, Canopy showed its medical cannabis business outperforming in its recent quarterly earnings release for the three-month period ending June 30. They showed growth of 3% in its medical business, while recreational sales to consumers declined by 29% due to COVID and competition.

 

Despite remaining a focus for many licensed producers, trends in the Canadian medical cannabis sector show it contracting for the most part, with no bottom reached just yet. The first dataset we look at is the number of active medical clients registered by licensed producers. The number of medical clients increased during the first year of legalization, but starting in September 2019 we have seen huge declines in registered patients. We attribute this drop to the increase in recreational retail outlets, increased product variety (including Cannabis 2.0 items), and falling prices. 

Even as store counts increased significantly, particularly in Ontario, Cannabis Benchmarks projections did not anticipate the sales growth that occurred from May to June. Momentum in the industry was underestimated due to most Canadians being under some degree of lockdown order at the time. 

 

June’s numbers tell us that more Canadians are using cannabis products whilst under lockdown and they are choosing to buy through legal channels. Such trends have been observed in legal U.S. cannabis markets as well. These conclusions are supported by Ontario’s sales patterns. Ontario saw sales jump by 19% month-on-month in June, while the province’s store count only increased by 6.5%. This indicates that each store is serving a wider base of customers, assuming clients are purchasing similar quantities. Given that legal cannabis stores have been permitted to remain open during the pandemic it is unlikely that consumers are making outsized purchases to stock up or hoard product. This reasoning suggests the assumption that individual buying patterns have remained stable is a sound one.

 

Looking beyond June, we now see sales continuously expanding and believe that many consumers have been converted from the illicit market to legal channels as a result of the COVID-19 pandemic. We project sales will continue to increase each month as new stores open and more Cannabis 2.0 products become available. 

 

Cannabis 2.0 products seem to be key to higher sales for many of the top licensed producers (LPs). As dried flower prices sag to compete with both the illicit market and other legal businesses, LPs see Cannabis 2.0 products as a major growth sector where they can extract a premium for their production. 

 

For example, in Canopy’s latest earnings call, management noted cannabis beverages as a key offering to grow its market presence, especially amongst consumers who have no interest in smoking as a consumption method. With the expertise of its investor and partner Constellation Brands, the company announced in a May 2020 investor presentation that it has shipped 530,000 drinks since the launch of Cannabis 2.0 products in Q4 2019. 

 

Beverages, along with other key products such as vapes, accounted for 12% of Canopy’s total sales in the latest earning quarter. The company expects cannabis beverages to soon make up 5% of the total Canadian beverage market. It is still unclear if these sales are one-time novelty purchases or if consumers will make a habit of buying cannabis beverages, but Canopy claims the demand is there and will be consistent. As a result, they have doubled their weekly production runs to eliminate SKU stockouts by mid-2021.

 

Below are some slides from the May Virtual Investor Meeting.

Source: Canopy Growth Investor Presentation – May 2020

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

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

August 21, 2020

CANADA CANNABIS SPOT INDEX — August 21, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published August 21, 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$6.47 per gram this week, up 3.8% from last week’s C$6.23 per gram. This week’s price equates to US$2,220 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 look at the state of the Canadian medical cannabis market since recreational legalization. The medical cannabis sector faces stiff competition from both the legal recreational market and the still-robust illicit market. That being said, medical cannabis is still a significant area of focus for many of the large cultivators, which can be seen in their financials. For example, Canopy showed its medical cannabis business outperforming in its recent quarterly earnings release for the three-month period ending June 30. They showed growth of 3% in its medical business, while recreational sales to consumers declined by 29% due to COVID and competition.

 

Despite remaining a focus for many licensed producers, trends in the Canadian medical cannabis sector show it contracting for the most part, with no bottom reached just yet. The first dataset we look at is the number of active medical clients registered by licensed producers. The number of medical clients increased during the first year of legalization, but starting in September 2019 we have seen huge declines in registered patients. We attribute this drop to the increase in recreational retail outlets, increased product variety (including Cannabis 2.0 items), and falling prices. 

Source: StatCan, Cannabis Benchmarks

In October 2018, when recreational cannabis was federally legalized, two provinces – Alberta and Ontario – were home to 78% of the country’s active registered medical cannabis clients. The two provinces can be seen as case studies in how the development of the recreational market can impact demand in the medical sector. 

 

Alberta on one hand made it quick and simple to open a new recreational retail location, while Ontario’s licensing process was much slower. This shows in the number of retail stores open in both provinces. Ontario, with 14.4 million citizens, had 116 stores open by the end of July; Alberta, with 3.4 million citizens, had 500 stores open. 

 

With more convenient access in Alberta, a significant portion of medical cannabis clients let their registrations lapse and shifted to purchasing in the recreational sector. Contrastingly, with few stores open, Ontario saw an increase in medical cannabis clients up until September 2019. With more Ontario stores opening, the previous increase in registered medical cannabis clients is being reversed, as they can obtain product via recreational retailers without going to the trouble of registering with the medical program. 


Alberta currently has 73,000 medical cannabis clients, down 19% from October 2018. Ontario currently has 171,000 medical cannabis clients, 1% lower than the number registered in October 2018.

Source: StatCan, Cannabis Benchmarks

Another dataset that illustrates the downward trend in Canada’s medical market is the number of monthly medical cannabis cannabis shipments from licensed producers to patients.

Source: StatCan, Cannabis Benchmarks

As seen above, there is a clear downward trend from October 2018 to February 2020. However, that trend was disrupted notably in March 2020. The reason behind the spike in shipments in March is that registered medical clients placed an outsized amount of online orders, as Canadians became subject to COVID-related lockdowns.

Province by province we see a similar trend, as shown in the chart below, with the exceptions of British Columbia (BC) and Quebec. Although BC has built out a robust retail footprint, residents still rely heavily on the illicit market, which is traditionally strong in Western Canada. While Quebec has some of the most inexpensive recreational cannabis prices in the country due to a low provincial mark-up, it does not have a well-built recreational retail network. This has led to medical cannabis shipments holding steady, and even increasing.

Source: 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

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

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.

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 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.