December 2, 2021

U.S. Cannabis Spot Index — December 3, 2021

U.S. Cannabis Spot Index — Published December 3, 2021

The U.S. Cannabis Spot Index decreased 0.3% to $1,286 per pound.

 

The simple average (non-volume weighted) price decreased $3 to $1,632 per pound, with 68% of transactions (one standard deviation) in the $822 to $2,441 per pound range. The average reported deal size was nominally unchanged at 2.5 pounds. In grams, the Spot price was $2.84 and the simple average price was $3.60.

 

The relative frequency of transactions for indoor product rose 1%, that for deals for greenhouse product fell 1% and the relative frequency of outdoor transactions was unchanged this week.            

 

 

The Cannabis Benchmarks U.S. Spot Index fell just $3.28 this week, to $1,286 per pound. The 20-week average change in the U.S. Spot is -$13.90 and this week’s departure from the average weekly change is significant. The Oregon Spot 20-week average move is -$16.70; this week Oregon Spot fell just $3.49 per pound. Likewise, in California, the 20-week average weekly change in spot prices is -$24.15; this week the state Spot Index is down $15.68. The average price change in Colorado for the past 20 weeks has been -$7.47; again, losses narrowed to just $4.64 per pound. Washington spot prices have been in a downtrend as well with the 20-week average weekly change at -$7.00. However, this week the Spot downtrend in Washington intensified, with price down $49.17 per pound. 

 

As legacy state weekly average price changes narrow for the most part, the market may be undergoing a post harvest “clearing,” where growers sell into a falling market, but weekly price changes narrow. That is, as the market clears, prices start to stabilize; first by narrowing losses and then by building a base price by repeated sales of crops within a tight range. State spot markets will not “clear” all at once, as illustrated by Washington’s sharp negative departure from the average weekly change. Still, the 20-week average spot price change may be an early signal wholesale flower prices are set to stabilize, at least in the near term.

June 2022 Implied Forward initially assessed at $1,410 per pound.

 

The average reported forward deal size declined to 67 pounds. The proportions of forward deals for outdoor, greenhouse, and indoor-grown flower were 38%, 47%, and 15% of forward arrangements, respectively.

 

The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 100 pounds, 52 pounds, and 35 pounds, respectively.

 

At $1,350 per pound, the January 2022 Implied Forward represents a premium of 4.9% relative to the current U.S. Spot Price of $1,286 per pound. The premium or discount for each Forward price, relative to the U.S. Spot Index, is illustrated in the table below.

Headlines from this week's Premium Report:

California

Q3 Sales and Tax Revenues Dip

Oregon

Wholesale Prices to Rise in Spring 2022, Grower Say

New York

Report: State All-in on Cannabis; Few Towns Choosing to Ban Adult Use Businesses So Far

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

3 December 2021.  Copyright © 2021 New Leaf Data Services, LLC.  All rights reserved

November 24, 2021

U.S. Cannabis Spot Index — November 26, 2021

U.S. Cannabis Spot Index — Published November 26, 2021

The U.S. Cannabis Spot Index decreased 1.9% to $1,290 per pound.

 

The simple average (non-volume weighted) price decreased $22 to $1,634 per pound, with 68% of transactions (one standard deviation) in the $826 to $2,443 per pound range. The average reported deal size was nominally unchanged at 2.5 pounds. In grams, the Spot price was $2.84 and the simple average price was $3.60.

 

 

California Spot prices, which wield significant influence over the U.S. Spot, have undergone a dramatic sell-off in 2021. Outdoor flower is the largest volume product type with plenty of supply to fulfill demand, including the growing demand for extracted products. 

 

Significantly less greenhouse than outdoor product is available, but because the category is bifurcated – some product is very high quality and some product is akin to outdoor-grown – price follows the lesser quality product. Greenhouse flower prices tanked in 2021 in large part due to significant supply generated by light-deprivation operations this past summer. 

 

Indoor-grown product prices remained fairly steady through much of the year, but began to sell off in earnest in September. The sell-off may have been triggered by a larger quantity made available by more growers eager to fulfill high-end demand; price may also have been pulled lower by the more significant losses in greenhouse and outdoor product.

 

 

In fact, the deterioration of outdoor flower’s price started earlier than that of greenhouse product, and greenhouse price deterioration began before that of indoor flower. Within markets with similar, but not necessarily identical commodities, price contagion can spread throughout similar products without respect to particular quality.

 

One takeaway is that a bifurcated market within one growing category has a higher price contagion effect. The other takeaway is that seasonal activity, summer and fall harvests in this instance, has a profound effect on all categories because of a vastly increased supply available of the lowest priced category, thus price contagion spreads upward to the higher priced products. Price contagion does not happen all at once; it spreads across similar, but not identical markets, over time.

 

When there is a physical market for cannabis products, one way growers will be able to hedge against seasonal fluctuation and price contagion is trading the spread between prices.

 

December 2021 Implied Forward closes down $40 at $1,330 per pound.

 

The average reported forward deal size was nominally unchanged at 68 pounds. The proportions of forward deals for outdoor, greenhouse, and indoor-grown flower were 40%, 45%, and 15% of forward arrangements, respectively.

 

The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 99 pounds, 53 pounds, and 34 pounds, respectively.

 

At $1,330 per pound, the December Implied Forward represents a premium of 3.1% relative to the current U.S. Spot Price of $1,290 per pound. The premium or discount for each Forward price, relative to the U.S. Spot Index, is illustrated in the table below.

Headlines from this week's Premium Report:

Massachusetts

Spot Prices Stable as Cultivator Numbers Jump

Illinois

Medical Cannabis Program Continues to Draw Patients

Alaska

Product for Extraction Demand Jumps 49% Year-on-Year

Arizona

September Cannabis Sales Fall as Employment Rises

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

26 November 2021.  Copyright © 2021 New Leaf Data Services, LLC.  All rights reserved

November 19, 2021

U.S. Cannabis Spot Index — November 19, 2021

U.S. Cannabis Spot Index — Published November 19, 2021

U.S. Cannabis Spot Index decreased 1.4% to $1,314 per pound.

 

The simple average (non-volume weighted) price increased $7 to $1,656 per pound, with 68% of transactions (one standard deviation) in the $831 to $2,481 per pound range. The average reported deal size increased to 2.5 pounds. In grams, the Spot price was $2.90 and the simple average price was $3.65.

 

The relative frequency of transactions for each grow type was essentially unchanged from last week. 

           

 

The relative volume of indoor product fell 2%, while that of greenhouse flower rose 3%. The relative volume of outdoor product contracted by 1% this week.

 

 

The gap between U.S. Spot prices and those of Midwestern states is widening, with Illinois and Michigan both fully legalized and supplying consumers in contiguous states, some of which have medical cannabis markets. Michigan’s price is $1,100 over the U.S. Spot and Illinois is trading $1,600 over U.S. spot. There are clear advantages of being the only two amid the 12 states that make up the Midwest to have legalized adult use cannabis. As we covered recently, Illinois officials reported that over 30% of sales revenue came from purchases made by out-of-state consumers last month. This situation is likely to persist as surrounding states do not appear inclined to legalize imminently.

 

That said, there are more subtle realities at work. Illinois and Michigan are also enjoying the pricing advantage that comes with new markets, including relative scarcity in their adult use systems. Additionally, growers have yet to be disintermediated from their product. That is, the extraction, product manufacturing, packaging, marketing, and other value-added services have yet to disconnect – disintermediate – growers from the pricing process. Indeed, Illinois’ market is dominated by a handful of large multi-state operators that seek to stop price bleed – at least for a time – by vertical integration, owning the means of growing through retail sales. Whether this situation will persist as state markets, and eventually a national one, develop remains to be seen. At the end of the day, legacy markets underwent the divorce of growers from pricing power such that some in California have told us “growers have no say in price.”

December 2021 Implied Forward assessed down $25 to $1,370 per pound.

 

The average reported forward deal size increased 2 pounds to 68 pounds. The proportions of forward deals for outdoor, greenhouse, and indoor-grown flower were 41%, 44%, and 16% of forward arrangements, respectively.

 

The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 100 pounds, 51 pounds, and 34 pounds, respectively.

 

At $1,370 per pound, the December Implied Forward represents a premium of 4.3% relative to the current U.S. Spot Price of $1,314 per pound. The premium or discount for each Forward price, relative to the U.S. Spot Index, is illustrated in the table below.

Headlines from this week's Premium Report:

Massachusetts

Spot Prices Stable as Cultivator Numbers Jump

Illinois

Medical Cannabis Program Continues to Draw Patients

Alaska

Product for Extraction Demand Jumps 49% Year-on-Year

Arizona

September Cannabis Sales Fall as Employment Rises

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

19 November 2021.  Copyright © 2021 New Leaf Data Services, LLC.  All rights reserved

November 12, 2021

U.S. Cannabis Spot Index — November 12, 2021

U.S. Cannabis Spot Index — Published November 12, 2021

U.S. Cannabis Spot Index decreased 2.9% to $1,333 per pound.

 

The simple average (non-volume weighted) price decreased $13 to $1,649 per pound, with 68% of transactions (one standard deviation) in the $826 to $2,472 per pound range. The average reported deal size increased to 2.4 pounds. In grams, the Spot price was $2.94 and the simple average price was $3.64.

 

The relative frequency of transactions for indoor flower rose 1% this week, while that of deals for greenhouse flower fell 1%. The transaction frequency for outdoor flower was unchanged this week.       

     

 

The relative volume of indoor product fell 2%, while that of greenhouse flower rose 1%. The relative volume of outdoor product rose 1% this week. 

 

 

The downtrend in the U.S. Spot has intensified over the past several weeks as legacy state spot prices have been driven lower, owing largely to oversupply in California, Colorado, and Oregon. California Spot is down almost $430 per pound from late July, Oregon is down over $288, while Colorado has shed some $153 from late July, pulling U.S. Spot down $258 per pound. 

 

The convergence of legacy state prices and their subsequent divergence highlights the weakness in California’s market, as price crosses over both Oregon and Colorado prices. The most severe price pressures are coming from massive oversupply of outdoor grown flower, with what looks to be an abundant harvest this year added to inventory held back from last year and that generated this summer. 

 

Growers in Oregon and California have opined on oversupply, but ultimately do not see canopies shrinking in a meaningful way despite current market conditions. In fact, northern California has pinned their prices hopes on marketing product across the U.S. and ultimately around the world, with decades of growing experience and, even now, brands that are recognized across the country. Oregon cultivators are similarly hoping for federal legalization to occur in a timely manner so that the excess supply generated in the state can be exported east.

 

December 2021 Implied Forward assessed down $25 to $1,395 per pound.

 

The average reported forward deal size was nominally unchanged at 66 pounds. The proportions of forward deals for outdoor, greenhouse, and indoor-grown flower were 39%, 45%, and 16% of forward arrangements, respectively.

 

The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 96 pounds, 51 pounds, and 34 pounds, respectively.

 

At $1,395 per pound, the December Implied Forward represents a premium of 4.6% relative to the current U.S. Spot Price of $1,333 per pound. The premium or discount for each Forward price, relative to the U.S. Spot Index, is illustrated in the table below.

Headlines from this week's Premium Report:

National

Inflation Hits 30 Year High; Energy Prices Surge Impacts Consumers & Producers

Colorado

2021 Sales Will Exceed 2020’s, But Recent Monthly Tallies Down Year-on-Year

Maine

Monthly Adult Use Sales sub $10 Million – Again

Oklahoma

Medical Sales Fell in September, Number of Grower Licenses Still Increasing

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

12 November 2021.  Copyright © 2021 New Leaf Data Services, LLC.  All rights reserved

November 5, 2021

U.S. Cannabis Spot Index — November 5, 2021

U.S. Cannabis Spot Index — Published November 5, 2021

U.S. Cannabis Spot Index decreased 0.8% to $1,373 per pound.

 

The simple average (non-volume weighted) price decreased $11 to $1,662 per pound, with 68% of transactions (one standard deviation) in the $827 to $2,497 per pound range. The average reported deal size was nominally unchanged at 2.3 pounds. In grams, the Spot price was $3.03 and the simple average price was $3.66.

 

The relative frequency of transactions for indoor flower was up 1% this week while that of deals for greenhouse flower fell 2%. The transaction frequency for outdoor flower was up 1% this week.     

       

 

The relative volume of indoor product was up 1%, while that of greenhouse flower fell 1%. The relative volume of outdoor product was unchanged this week.

 

 

The U.S. Spot downtrend shows no signs of reversing, with price falling over $122 per pound over the past six weeks, encompassing much of the harvest season. There is little in the way of chart based support – a lower level at which price traded previously. The nearest support level is more than $50 away at $1,322 per pound, after which support lies at $1,227, $1,137, and $991 per pound. 

 

The convergence of legacy state spot prices within a $24 range might help establish a range, but if Washington, Colorado, and Oregon continue to decrease, prices may accelerate on the downside, driving up volatility and potential downward price spikes. That said, downward price spikes often end downtrends with bargain hunters coming in at historical lows and buying up inventory, thus reversing downtrends. However, given segregated state markets and the lack of options for trading cannabis contracts financially, buyers must have somewhere to go with the product and a severe glut could very well lead to a lull in physical trading and the persistence of depressed prices before the downtrend is eventually reversed. 

 

The convergence of state spot prices has taken place during harvest season when more and newer product becomes available, even while growers with older product continue to chase price lower. Outdoor grown product prices for Western states reflect the same price pressure dynamics. A longer view on price suggests a bifurcated market with outdoor grown prices maintaining convergence while indoor product prices continue to remain relatively elevated. 

 

 

Ultimately, cannabis as a commodity may reflect outdoor grown prices only, leaving traders with the choice to ratio hedge against higher priced product. Ratio hedging within the same market, but with different quality or quantity product, is done by trading a higher quantity of contracts for the lower priced commodity – in this case outdoor flower – to correctly represent the value of the higher priced one – indoor grown product in this example – while also taking into consideration not only contract price but price volatility. Practically speaking, if outdoor grown product trades at one third the price of indoor grown product, one would need to trade three pounds of outdoor grown to every one pound of indoor grown product.

 

May 2022 Implied Forward initially assessed at $1,485 per pound.

 

The average reported forward deal size was unchanged at 66 pounds. The proportions of forward deals for outdoor, greenhouse, and indoor-grown flower were 39%, 44%, and 17% of forward arrangements, respectively.

 

The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 98 pounds, 50 pounds, and 34 pounds, respectively.

 

At $1,420 per pound, the December Implied Forward represents a premium of 3.4% relative to the current U.S. Spot Price of $1,373 per pound. The premium or discount for each Forward price, relative to the U.S. Spot Index, is illustrated in the table below.

Headlines from this week's Premium Report:

Oregon

Year-on-Year Sales Down 7% in October

Illinois

Adult Use Cannabis Sales and Prices Climb

Massachusetts

Report: More Licensed Testing Labs May Lead to Lower Prices

New York

Report: No Adult Use Cannabis Licenses until 2023

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

5 November 2021.  Copyright © 2021 New Leaf Data Services, LLC.  All rights reserved

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