September 13, 2022

How Will the Fall Harvest Impact Colorado Cannabis Prices?

How Will the Fall Harvest Impact Colorado Cannabis Prices?
Photo: Collie Coburn/Unsplash

Cannabis Benchmarks spoke with Van McConnon to get a feel for the Colorado cannabis market, where he has been a grower and a consultant in the industry for decades. McConnon has seen some ups and downs as a market participant, consultant to cannabis firms, and observer.

Charts can reveal the technical reason for a sell-off in Colorado cannabis prices, but McConnon sees big structural issues as the cause for much of the price deterioration in the state and across the nation. When asked what he thinks is driving Colorado prices down, McConnon simply said, “Oklahoma.” According to McConnon, Colorado had a thriving cross-border cannabis trade with Texas until a massive growing spree in Oklahoma snatched that business away. McConnon said Colorado stores along the Oklahoma panhandle were some of the most profitable in the state until Texans gave up traveling north to that area and started partaking in the convenience of a 540 mile border with Oklahoma. Adding insult to injury, Colorado “weed tourism” all but dried up during COVID and, with cannabis legal across much more of the nation than when Colorado and Washington first legalized in 2014, “now you can have weed tourism in any [legal] state,” according to McConnon.

McConnon said Colorado prices have little chance of recovery in a market characterized by “$40 ounces” and “last year’s outdoor crop still on the market.” The recent rise in outdoor cannabis prices in the state is due to the “summer crop” bumping prices up; the implication is that fresher product temporarily drew higher bids in the market. He sees greenhouse product trading $550 – $650 per pound and bifurcates the top end of the market, saying the best indoor product is still getting $1,200 to $1,400 per pound, with middling indoor trading between $900 – $1,000 per pound. McConnon said there is no chance Colorado cannabis prices will recover if “this year’s crop comes in like last year’s crop,” referring to the size of the 2021 harvest.

McConnon says Colorado cannabis “revenue is down 20%” and harvest weight is down “10 to 12%” as demand slackens in the wake of “losing Texas.” In a bit of a history lesson, McConnon recalled the practice of “looping,” whereby medical card holders would buy the maximum 2.5 ounces each day, accumulating ten pounds of product in a week’s time and then taking it to Oklahoma, Texas, and Nebraska for a quick, fat profit. He said “looping has gone way down” in a local crackdown on the practice and due to the demand drop off behind Oklahoma legalization.

On a wider frame, McConnon noted “folks got into this market with weed at $350 – 400 per ounce,” himself included. Today, at $150 per ounce for the best product, he does not see a sustainable business model. McConnon has seen his share of whipsaws in the cannabis market – ranging from price crashes to illicit market dominance to demand destruction – and is skeptical current businesses can go on in this manner, much less under nationwide legalization.

Speaking of nationwide legalization, McConnon is not averse to picking winners when interstate trade is eventually allowed. In his view, Oregon has the best cannabis in the nation hands down, followed by northern California, which he sees as having a very expensive tax and licensing regime, not to mention very expensive energy costs and water issues. He theorized that East Coast markets may not thrive as expected due to high land and licensing costs, high taxes, and climates not conducive to vast production. At the end of the day, McConnon sees Oregon as the big winner in national legalization, given their history of exporting the crop, low barriers to entry in the cannabis business, high quality product, and low energy and land costs.

McConnon tends to see the wider picture in terms of how successful each market is in its own right and in relation to other state cannabis markets. Montana has cannabis quality issues. California has quality issues from the largest grow sites but, along with Oregon, has a thriving illicit market where “spending $75,000 for 100 pounds of cannabis can return $250,000 when it arrives in Chicago.”

Speaking of Illinois, they too have quality issues arising from the “oligarchy,” said McConnon, referring to the large Multi-State Operators based in the state. In fact, he remarked, “it’s a close contest between Florida and Illinois for the worst weed” in the nation. He puts this down to massive grows in limited licensing states that keep craft growers from producing a better product for consumers. He believes the cannabis industry should be 100% consumer-focused, allowing anyone to grow and sell cannabis without licensing and tax restrictions. He believes there is little understanding of the “effectiveness of the black market,”and noted that state legalization schemes, in which he has extensive experience, are disparate and not amenable to nationwide legalization.

McConnon has been around the business for decades and thinks people might not understand the implications of nationwide legalization. McConnon posed the question, “will dedicated weed shops survive on $2 per gram at retail?” He thinks not. However, McConnon is hopeful for those who can produce very high end cannabis and establish a niche market amid nationwide legalization, where he expects massive cannabis grows to flood the market with substandard product.

December 21, 2021

Colorado Retail Cannabis Sales Stall as Wholesale Prices Continue to Decline

Colorado
Photo: Mana5280/Unsplash

The Colorado Department of Revenue (CDOR) released its monthly Marijuana Sales Report for October 2021 this week. Combined retail (the state’s term for adult use) and medical sales were $176.4 million, down 2.6% from $181.1 million in September 2021 and down 11.7% from October 2020’s $199.8 million.

Year-to-date CDOR reports $1.9 billion in combined adult use and medical sales through October, 13.2% below 2020 total sales. Year-to-date sales are on pace to exceed 2020’s combined adult use and medical sales by $91.9 million.

October 2021 retail sales (adult use), at $147 million, were down 2.4% from September’s retail sales of $150.8 million and down 8.6% from October 2020’s $161 million.

CDOR also reported on November 2021 Marijuana Tax Revenue, which corresponds generally to October sales activity. The 15% wholesale tax is levied on adult use cultivators when unprocessed cannabis plant material is sold or transferred to a processor or retailer. November 2021 brought $8.6 million to state coffers from that tax, 3.2% less than the $8.9 million collected in October 2021 figure and down 15.2% year-on-year. Year-to-date as of November 2021, the 15% excise tax collected stands at $110.1 million and is 18.8% higher than the amount collected from January through November 2020.

Average Market Rates (AMRs) are used by the state to assess the wholesale excise tax on internal transfers of flower, trim, and other plant material between commonly-owned adult use licenses. After a surge in AMRs in July 2021, such that AMRs for bud for extraction jumped 70% and trim for extraction jumped 26%, AMRs have generally fallen since Q3. AMRs are calculated on prices gathered in previous quarters, such that Q1 2022 rates are based on data from the METRC reporting system for September, October, and November 2021. AMRs have been adjusted for Q1 2022, as depicted in the table below.

Colorado wholesale flower prices are down about $219 per pound since June 2021, but the pace of weekly losses has slowed. The 20-week average loss per pound is -$7.33, but the 10-week average loss per pound each week has narrowed by 84% to just -$1.16, suggesting downside price momentum is slowing. Indeed, there has been a small uptick in prices for outdoor and indoor product as the immediate effects of the harvest wane. Spot losses have narrowed, though the trend is still down.

September 21, 2021

Colorado Marijuana Sales on Track to Surpass 2020 Totals

Colorado Landscape
Photo: Shelby Smith

The Colorado Department of Revenue (CDOR) recently released its monthly Marijuana Sales Report for July 2021. According to that report, demand picked up month-on-month, to levels not seen since early spring 2021. While there’s been a good bit of variability in monthly sales in 2021, the last three months have seen medical sales move forward on their average monthly sales for the year at $36.4 million per month. The adult-use monthly sales were $167.8 million — well over 2021 average monthly sales at $156.8 million.

In July, combined retail sales of adult-use and medical cannabis totaled $202.8 million, up by 8.3% from June’s combined revenues of over $187.3 million. On a year-on-year basis, those July 2021 sales, at $202.8 million, are up just 2% from the July 2020, $198.9 million data. Year-to-date, combined adult-use and medical cannabis sales in Colorado, at $1.35 billion, put Colorado on pace to exceed the 2020 total sales, which came in at $2.2 billion.

Adult-use retailers in Colorado tallied over $167.8 million in July, a 9.9% increase over June adult-use retailer sales. Year-over-year, July 2021 adult use retail sales, at $167.8 million, were down 9.1% from July 2020’s monthly figure of $183.1 million. Retail revenues from the adult-use sector expanded by over 24% from 2019 to 2020 but look set to expand by just 6.7% in 2021 if retail revenues keep their current monthly pace.

Medical cannabis revenues in July 2021 came in at just over $35 million, up 1.5% from June 2021’s $34.5 million, but down by 23.6% from the July 2020 figure of $43.3 million.

In the wholesale realm, tax collection data for August 2021 – which corresponds generally to wholesale transfers and transactions executed in July – shows that the 15% excise tax on wholesale activity in Colorado’s adult-use system resulted in nearly $9.5 million accruing to state coffers. August wholesale excise tax receipts are down by 3.9%, compared to tax collections from the previous month, which amounted to just under $9.9 million.

Average Market Rates (AMRs), used by the state to assess the wholesale excise tax on internal transfers of flower, trim, and other plant material between commonly-owned adult-use licenses, increased from June to July. (Since August 2017, AMRs are adjusted quarterly by the Colorado Department of Revenue.) The Q3, 2021 effective tax on internal transfers of flower from licensed cultivation businesses to commonly-owned retailers went up $1 per pound to $1,309 for flower, effective through September 30, 2021. While some AMRs were little changed in July, the tax on bud allocated for extraction jumped by 71.6% to $901 per pound, the retail trim rate jumped by over 20% to $425 per pound and trim allocated for extraction went up nearly 7% to $425 per pound. These changes suggest that the downturn in July tax collections is likely due to less wholesale product being transferred between commonly owned adult use licenses. The table below shows AMRs for all of 2021 with the newly issued October AMR at the top of the table.

The AMR for bud allocated for extraction will fall over 50% to $405 per pound in Q3, but the AMR for trim will rise nearly 24% to $302 per pound, commencing on October 1, 2021.

CDOR calculates AMR for each quarter by averaging the first two months of the previous quarter with the last month of the quarter before, to come up with the AMR for the next quarter.  For instance, to find the AMR for Q4, 2021, CDOR averages prices from June 1 through August 31, 2021, thus the average captures part of the previous two quarters in calculating the next quarter AMR.