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

January 17, 2020

CANADA CANNABIS SPOT INDEX — January 17, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published January 17, 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$6.46 per gram this week, down 0.7% from last week’s C$6.51 per gram. This week’s price equates to US$2,246 per pound at the current exchange rate.

This week we continue our discussion of both the current availability and prospects related to the Cannabis 2.0 market. As a quick reminder, Cannabis 2.0 refers to the legalization of edibles, extracts, and topicals. Unlike last year at the onset of legalization – when there appeared to be a massive shortage of flower and supply dynamics were opaque – the provincial governments, licensed producers, and retailers have this time been vocal in setting expectations. They have been open about both the timeline to release products and their limited initial availability. That said, demand for the new products has been roaring. Most shops sell out their stocks immediately.

As part of the roll out of Cannabis 2.0, Health Canada has put strict regulations on the level of THC contained in each product, as well as on packaging and labeling. 

  1. These products cannot contain nicotine, caffeine, or alcohol; hence no infused coffee or alcoholic beverages will be available. 
  2. Edibles (food, candy, or beverages) cannot contain more than 10 milligrams of THC per container. For example, a package of the Grape Oasis Gummies shown below comes with five pieces that contain two milligrams of THC each. 
  3. Cannabis oil extracts are limited to 1,000 milligrams of THC per container.
  4. Topicals, such as lotions, cannot contain more than 1,000 milligrams of THC in a container.

Ontario was one of the few provinces that gave private brick and mortar stores a head start on receiving and selling Cannabis 2.0 products. Starting January 6, the 25 Ontario retailers were able to procure a limited range of products to sell ahead of the government-run Ontario Cannabis Store (OCS). Yesterday, was the first day that the OCS online store sold Cannabis 2.0 products and they were sold out of edibles within hours of their initial availability. In fact, there was a digital queue of thousands of orders showing the strong demand. Currently there is only one cannabis edible product listed on the OCS, but even that is out of stock.

The coming months will be interesting in this industry as the Canadian population becomes accustomed to the new product types. We will be tracking the sales growth associated with these new products, as well as how dry flower sales might be impacted.

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

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

January 10, 2020

CANADA CANNABIS SPOT INDEX — January 10, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published January 10, 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$6.51 per gram this week, down 1.8% from last week’s C$6.61 per gram. This week’s price equates to US$2,260 per pound at the current exchange rate. 

Let’s start by clarifying the definition of Cannabis 1.0 and Cannabis 2.0.

Cannabis 1.0 refers to the first phase of THC product legalization in Canada, which included the sale of dry flower (combustible products), cannabis oils, and cannabis plants and seeds. These products first became available for recreational use on October 17, 2018. At the outset, this new industry faced some turbulence in the form of supply shortages that quickly turned into oversupply. Today, with over 100 different licensed producers (LPs), the market is flooded with dry flower of different qualities and strengths. Consumption has not tracked with the growth in supply; most cannabis consumed in Canada is still bought from illicit sources due to the legal market’s inadequate accessibility and high prices.

Cannabis 2.0 refers to the legalization of edibles, extracts, and topicals. While these expanded product lines were formally permitted on the one-year anniversary of legalization in October 2019, a full product offering is not yet available in most provinces due to regulatory timelines and approval processes put in place by Health Canada. Cannabis cultivators are required to apply for an amended license, submit products for a 60-day review period, and pass strict quality assurance standards. When products meet these criteria, they may be introduced to the market; hence the earliest these products could be available would have been Dec 17, 2019.

As of this week, while most provinces are authorized to sell these products, retailers have very limited, if any, product selection.

Major Provinces Cannabis 2.0 roll out details:

Saskwetchwan & Manitoba: Limited product available as of late December, with more selection available at retail shops expected in late January.

Quebec: Limited products available as of January 1. 

Ontario: Limited selection available in stores starting January 6. Stores have been given a head start in selling new products ahead of the provincial online store due to limited availability initially. The online store is scheduled to start sales on January 16.

British Columbia: The BC online store had its first batch of four products available on December 20. Products were to arrive in stores by late December

Alberta: Products are expected to be available in mid-January.

Per-item prices for edibles are expected to range from $7 to $14, beverages are set to cost between $4 and $10 each, and vapes will be priced anywhere from $25 to $125 per unit. 

Cannabis 2.0 is expected to kick start additional demand in the legal market. Despite many stores not being stocked with the new product offerings currently, LPs are more prepared this time around relative to the start of Cannabis 1.0. The initial supply shortages are not expected to persist for as long as the shortages for dried flower and oils that occurred in late 2018 and early 2019. These products will fetch a hefty premium over dry cannabis, as this category does not compete directly with most cannabis products coming from the illicit market.

The variety of products should expand the current cannabis user base by bringing in novelty buyers, as well as attracting consumers away from the illicit market. We anticipate additional spending for Cannabis 2.0 products and forecast the boost in sales to reach 25% of the total spend in this market by Q4 2020.

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

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

January 3, 2020

CANADA CANNABIS SPOT INDEX — January 3, 2020

CANADA CANNABIS SPOT INDEX (CCSI) 

Published January 3, 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, down 2.1% from last week’s C$6.76 per gram. This week’s price equates to US$2,305 per pound at the current exchange rate. 

This week we examine the latest Statistics Canada data on retail cannabis sales by province. The release of data for October 2019 now gives us a view of sales expansion in each province over the course of the first year of Canada’s legal adult-use market. Total retail sales for October 2019 amounted to C$129M, or C$4.2M per day.


As seen in the chart below, retail sales grew steadily until August, after which they leveled off. The variances in average daily sales from August through October were within C$100,000 of an average of C$4.1M per day.

 

Source: Cannabis Benchmarks

Total national sales grew 240% from last November, but drilling into individual provinces tells quite a different story. Most provinces do show a big jump, but Manitoba saw almost no growth, while the Maritime Provinces actually saw a decline in monthly revenue.

Source: Cannabis Benchmarks

Notable aspects of the data include:

 

  1. Both Manitoba and the Maritime Provinces showed no growth over the year, even though the number of licensed stores grew and product prices dropped. 
  2. British Columbia’s sales grew by 1,201%. This is not entirely surprising; sizeable illicit market sales shifted to the legal side, as the number of licensed storefronts grew from less than 10 to over 100 in that time frame.
  3. Ontario – the largest province by population – experienced significant sales growth, but the most recent revenue figures are quite comparable to those of provinces such as Alberta, which has a much smaller population. 2020 should see Ontario’s sales break away from those of other, less populated provinces, as more stores open due to the Ontario government relaxing their retail store licensing process.
  4. Alberta has the most storefronts of all the provinces and this shows in the sales figures. Alberta sales grew by 253%, while the number of storefronts expanded by 580%.
  5. Saskatchewan sales were robust with a growth rate of 315% over the year. This is the only province where licensed producers can sell directly to retail stores, essentially cutting out the middle man (the Canadian government in this case). This keeps prices lower and more competitive with the black market. 

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

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

December 27, 2019

CANADA CANNABIS SPOT INDEX — December 27, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published December 27, 2019

*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$6.76 per gram this week, up 1.0% from last week’s C$6.69 per gram. This week’s price equates to US$2,336 per pound at the current exchange rate.

This week we examine the rising supply-demand gap in the Canadian cannabis market. With the onset of legalization over a year ago, data from Statistics Canada has shown increasing consumption in the recreational market, while that in the medical sector continues to slide. This makes simple sense, as Canadians look to self-medicate via purchasing in the adult-use market, rather than go through the formal process of getting a medical note to purchase more expensive medical products. We foresee this trend continuing as recreational cannabis becomes cheaper and more accessible. 

While the total monthly consumption of legal cannabis has been increasing steadily, as shown in the chart below, the legally licensed producers (LPs) continue to face intense competition from the robust illicit market. In September, Canada consumed a total of 14,000 kg from legal sources, or 467 kg/day. In Q3 2019, 5.2 million Canadians were estimated to be cannabis users. Given those numbers, Canadian cannabis consumers, on average, purchased 2.7 grams per person per month from legal sources. Overall, not an impressive number.

Source: Cannabis Benchmarks

Meanwhile, cannabis supply has been growing rapidly as every minor and major LP looked to build capacity to supply the market. According to data from Statistics Canada, total active cultivation area grew by nearly 400% over the first year of legalization to 19 million square feet. Cannabis Benchmarks estimates that total production peaked at 62,600 kg in July 2019. 

At full utilization, Canada’s LPs could grow over 100,000 kg/month. Since July, we estimate supply has slowed slightly as LPs began to manage production, stopped funding additional capacity, and wrote down inventory, thereby reducing the overall supply of product. 

Source: Cannabis Benchmarks

This significant gap between current supply and demand is leading to major inventory issues at the licensed producer site, with provincial distributors, and on the retailer’s shelf. After the first year of legal sales, finished and unfinished product inventory has ballooned to 28 months worth of current demand. This is a problem that will take some time to resolve.

Source: Cannabis Benchmarks

There may be some light at the end of the tunnel for the market; the oversupply has begun to moderate somewhat, which could lead to a more stable market towards the end of 2020. On the demand side, new regulations in Ontario could see a rapid build out in the physical retail locations across the country’s largest province by population, increasing accessibility. We project Ontario sales tripling from current levels by the end of 2020. Additionally, the new product categories such as vapes, edibles, beverages, and topicals available across Canada will lead to growing usage and an expanding consumer base.

On the supply side, where there is a clear overbuild of cultivation capacity, many major producers signalled in recent quarterly reports that they intend to scale back utilization of existing capacity and halt or delay further expansion to help balance the market. Adding to that, a handful of major LPs have also announced new discounted product lines to encourage customers to move away from the cheaper illegal market and obtain product from licensed sources. 

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

27 December 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved