January 7, 2022

U.S. Cannabis Spot Index — January 7, 2022

U.S. Cannabis Spot Index — Published January 7, 2022

The U.S. Cannabis Spot Index decreased 5.3% to $1,277 per pound. The simple average (non-volume weighted) price decreased $64 to $1,588 per pound, with 68% of transactions (one standard deviation) in the $817 to $2,359 per pound range. The average reported deal size increased to 2.3 pounds. In grams, the Spot price was $2.82 and the simple average price was $3.50.

 

The relative frequency of transactions for indoor product decreased 2%, that for deals for greenhouse product increased by 2%, while that of outdoor flower was unchanged. 

           

 

The relative volumes of indoor flower fell 3%, while that of greenhouse flower rose 1%. Outdoor flower’s relative volume increased by roughly 1%.

 

One way to view the large drop in spot prices is through what is known as discounting: the notion that market prices reflect all currently available market information and expected future information. So sellers might see a future where cannabis prices are significantly lower than they are currently and decide to shed inventory now, rather than store it in hopes of higher prices in the future. 

 

Discounting future prices is an inexact science in commodities pricing where conventional wisdom dictates the future price is today’s price with the cost of carry (storage costs) until the delivery date. Sophisticated futures markets take into consideration complex supply and demand factors and fundamental economic predictions when thinking about future prices. There is enough information in the cannabis market for growers, as well as other buyers and sellers along the supply chain, to correctly predict more supply in the future as more states join the ranks of legal cannabis markets. Operators in legacy states that have undergone previous sell-offs may be betting future prices are likely to be lower given current oversupply conditions and recent plateauing demand in local markets. While there are potential fundamental factors that suggest prices might be higher in the future – California may rescind the local control option, Oregon may limit retail outlets, or federal legalization may increase demand – none of these future events are certain. Price action suggests growers are seeing more evidence of surplus than scarcity now and in the future – and acting on it.

The July 2022 Implied Forward initially assessed at $1,400 per pound. The average reported forward deal size declined to 64.6 pounds. The proportions of forward deals for outdoor, greenhouse, and indoor-grown flower were 37%, 47%, and 16% of forward arrangements, respectively. 

The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 94 pounds, 51 pounds, and 35 pounds, respectively.

At $1,345 per pound, the February 2022 Implied Forward represents a premium of 5.3% relative to the current U.S. Spot Price of $1,277 per pound. The premium or discount for each Forward price, relative to the U.S. Spot Index, is illustrated in the table below.

average reported forward deal size was nominally unchanged at 66 pounds. The proportions of forward deals for outdoor, greenhouse, and indoor-grown flower were 36%, 48%, and 16% of forward arrangements, respectively.

 

The average forward deal sizes for monthly delivery for outdoor, greenhouse, and indoor-grown flower were 97 pounds, 52 pounds, and 36 pounds, respectively.

 

At $1,345 per pound, the January 2022 Implied Forward represents a discount of 0.3% relative to the current U.S. Spot Price of $1,349 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:

Illinois

Adult Use Sales Skyrocket in December

AlaskaOregon

2021 Outdoor Harvest Volume Soars 55%

Montana

Adult Use Sales Commence

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07 January 2022.  Copyright © 2022 New Leaf Data Services, LLC.  All rights reserved