Canada Cannabis Spot Index (CCSI) 

Week Ending April 30, 2021

*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$5.77 per gram this week, up 0.8% from last week’s C$5.73 per gram. This week’s price equates to US$2,114 per pound at the current exchange rate.

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As competition intensifies in the cannabis cultivation sector, Licensed Producers (LPs) continue to scrap existing indoor growing facilities and future development plans. With cost in mind, an increasing number of Canadian cannabis growers are shifting production capacity to outdoor operations. Outdoor cultivation has significantly lower operating costs relative to growing indoors or in a greenhouse, including lower infrastructure and labor costs, and no energy costs for lighting or HVAC needs.

The latest data from Statistics Canada shows outdoor cannabis cultivation capacity expanding at a consistent rate, while indoor space is on a decline. As of December 2020, there were 628 hectares licensed to grow cannabis outdoors. This is a massive jump relative to the same period last year.  Over the 12 months, outdoor cannabis cultivation capacity grew by 396 hectares or 270%. 

Source: Cannabis Benchmarks

The next chart takes the same data and standardizes the units to square feet. While this chart does not reflect the amount of actual cannabis production, since an indoor-grow will have multiple harvests annually, compared to one per year outdoors, it does show the dramatic shift towards outdoor production.

Source: Cannabis Benchmarks

Here we clearly see the growing disconnect between outdoor and indoor cultivation. This makes sense when one considers that legal markets have a growing inventory problem that can only be solved by either reducing supply or increasing demand. Regarding the latter, it is likely more straightforward in the near term for the legal market to attempt to take the share of existing demand captured currently by the illicit market, rather than convert individuals who never used cannabis previously to being regular consumers. 

Outdoor cultivation’s lower production cost makes it more competitive with illicit supply, but the resulting cannabis is frequently perceived to be of lower quality. As a result, significant portions of outdoor-grown product might not be as marketable for smoking in its raw form, relative to indoor-grown flower. However, outdoor-grown cannabis is very suitable as low-cost raw material for manufacturing cannabis 2.0 products such as edibles, beverages, and vapes. Such products are also typically less readily available from illicit sources and could bring existing consumers seeking novel products and experiences into the legal market. 

As we have noted in the past, outdoor cultivation does have risks. In Canada, weather can be responsible for destroying an entire harvest. On the other hand, the 628 licensed hectares could oversupply the market leading to lower prices and worsening economics for cultivators. This past October we saw a massive bump in unpackaged supply. From September to October we saw a 66% month-over-month jump in nationwide production due to the outdoor harvest.

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.