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

December 20, 2019

CANADA CANNABIS SPOT INDEX — December 20, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published December 20, 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$6.69 per gram this week, up 4.8% from last week’s C$6.39 per gram. This week’s price equates to US$2,310 per pound at the current exchange rate.

This week we examine the potential cannabis market landscape in British Columbia (BC) in 2020. Yesterday, December 19, BC initiated Cannabis 2.0. The province’s Liquor Distribution Branch (LDB), the wholesale distributor of non-medical cannabis, received its first batch of products other than dry flower, pre-rolls, and oils – such as edibles, vaporizers, beverages, extracts, and topicals – and began to distribute them via both public and private channels. Consumers can expect to see products on legal retail store shelves in time for the holiday season. The LDB has registered more than 260 products, but only a fraction of them will be available initially.

We believe the addition and diversification of available products will drive more consumers to the growing number of stores across BC and away from the illegal market. The variety will also attract new customers willing to experiment with cannabis, but averse to smokeable products. Overall, we see sales expanding with the the introduction of these new products and the continuous opening of new stores each month, of which there are currently 88 in the pipeline that have been licensed and are expected to open in 2020.

Cannabis Benchmarks projections for retail cannabis sales in BC and the number of licensed storefronts projected to open each month through the end of 2020 are illustrated in the chart below.

Source: Statistics Canada, Cannabis Benchmarks

As of the last retail report from the Government of Canada, BC’s monthly sales for August and September averaged C$12M. This is likely a relatively small portion of all cannabis commerce taking place in the province compared to that captured by the illicit market, giving legal sales significant room to expand. We are now forecasting legal retail cannabis sales in BC to average C$24M per month in 2020, with 230 retail locations open by December 2020, generating C$28.5M in sales that month. This puts total 2020 BC cannabis sales at C$288M, of which the Cannabis 2.0 products are expected to make up 15% or C$43M.

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

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

December 13, 2019

CANADA CANNABIS SPOT INDEX — December 13, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published December 13, 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$6.39 per gram this week, down 1.5% from last week’s C$6.29 per gram. This week’s price equates to US$2,197 per pound at the current exchange rate.

This week, the government of Ontario announced that it would abandon the current lottery system for cannabis retail licenses and replace it with an open licensing system with no cap on the number of private cannabis stores. 

The Alcohol and Gaming Commission of Ontario (AGCO) issued a press release stating it “will begin accepting operator licence applications from prospective retailers on January 6, 2020, followed by store authorization applications on March 2, 2020. Store authorizations from this open application process are expected to be issued beginning in April, at an initial rate of approximately 20 per month.”  

Other notable facts from the announcement include:

  • Licensed producers (LPs) can apply to open a store at one of their facilities.


  • Retail operators may own a maximum of 10 cannabis stores until August 31, 2020, after which the cap will rise to 30 in September 2020 and 75 in September 2021.


  • Authorized cannabis stores can now offer click-and-collect services that allow customers to order and pay for products online for in-store pick-up.


  • The application does not require a pre-qualification step, as was the case in the lottery process. Applicants are no longer required to secure leases or provide a letter of credit for $250,000.

  

Ahead of this next round of retail stores opening, AGCO also stated that some of the 42 proposed cannabis stores granted a license in the second lottery have been authorized to open their doors this month. We expect all 42 to open ahead of the next batch of stores coming in April from the new open licensing process.

Our last Ontario sales forecast, issued in our November 22 report, did take into account the new rules discussed above, but today we make some small revisions based on the more definitive details that just recently came to light. Our current estimate reduces the number of stores opening initially to 20 per month from April through July, then increasing from August onward.

We are now forecasting retail cannabis sales in Ontario to average C$71M per month in 2020, with 310 retail locations open in December 2020, generating C$92M in sales that month. This puts total 2020 Ontario cannabis sales at C$854M.

Cannabis Benchmarks projections for retail cannabis sales in Ontario and the number of licensed storefronts projected to open each month through the end of 2020 are illustrated in the chart below, on the following page.

Source: Statistics Canada, Cannabis Benchmarks

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

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

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