May 17, 2022

Connecticut Adult Use Cannabis Sales to Start in Late 2022

Connecticut Adult Use Cannabis Sales to Start in Late 2022
Photo: Christiann Koepke/Unsplash

Kaitlyn Krasselt, Communications Director for the Connecticut Department of Consumer Protection (DCP) – the agency overseeing adult use cannabis licensing in the state – confirmed to Cannabis Benchmarks that the state is likely to commence adult use cannabis sales late this year. Connecticut’s medical cannabis program has four licensed producers, which are all Multi-State Operators (MSOs). The licensed producers supply 18 dispensaries across the state, which are owned by the same companies that hold the producer licenses and are sure to apply for adult use licenses in the state’s cannabis license lottery. MSOs can convert their medical cannabis licenses into a “hybrid license” and, in addition, are allowed to partner with social equity applicants.

Thus far, Connecticut has collected over 8,200 social equity retailer applications for participation in the cannabis license lottery. The general lottery, for non-social equity applicants, has over 7,200 applications. Krasselt said there is no limit on the number of applications that can be entered into the lottery, providing each application is accompanied by the $500 application fee. As yet, no retailer licenses have been issued, but it is expected that 12 retailer licenses will be awarded out of the first lottery; six to social equity applicants and six to general applicants.

Krasselt said her agency “has not determined how many licenses will be available in the next lottery.” When asked if Connecticut was capping licenses, she responded “licenses are capped … and uncapped,” in that the DCP can decide to add more lotteries once two rounds of lotteries for each license type are completed. Krasselt noted that while medical cannabis operations are vertically integrated with MSOs owning the entire medical supply chain, new adult use licensees will be allowed to hold two license types but cannot be fully vertically integrated.

Connecticut spot prices have been rising steadily since fall 2021, climbing about $300 per pound to just over the $3,300 level this year. Prices are expected to begin to move sharply higher several months before the start of adult use sales at the end of this year. Given the proximity of several states committed to adult use legalization, it is likely prices across the Northeast will rapidly converge once each state is up and running. Below is a chart of Connecticut’s Spot Index and that of the adjacent state of Massachusetts, where the adult use market has been open for roughly three and a half years.

Connecticut and Massachusetts Wholesale Cannabis Prices

May 10, 2022

Illinois Cannabis Market Continues to Benefit from Customers Across State Lines

Lake Michigan
Photo: Stephan Cassara/Unsplash

The Illinois Department of Financial and Professional Regulation (IDFPR) issued adult use sales data for April 2022 this week. Combined sales to in-state and out-of-state residents at $131.8 million were up by just 0.6% month-on-month versus combined sales in March 2022 of $130.9 million. Year-on-year, April 2022 sales were up 14.6% from April 2021’s combined sales of $115 million.

April 2022 adult use sales to in-state residents were also up just 0.6% to $90.9 million versus March 2022 sales of $90.4 million but were up 13.8% from April 2021 in-state sales of $79.9 million. In-state sales were 69% of total sales in April 2022 versus 68.6% of sales in March 2022; in-state residents accounted for 69.5% of sales in April 2021.

April 2022 adult use sales to out-of-state customers inched up 0.7% to $40.9 million versus $40.6 million in March 2022 but were up 16.6% from sales of $35 million in April 2021. Out-of-state sales were 31% of total sales in April 2022 versus 30.5% in April 2021.

IDFPR supplies monthly data on the number of items sold; April items sold increased to 3.1 million, up 3.1% from March items sold of 3 million. The average price of each item sold was $42.48 in April 2022, down from $43.54 per item in March 2022 and down from $46.67 in April 2021. With spot wholesale prices down 13.3% in 2022, average retail item prices are down just 4.2% this year.

The Illinois Department of Public Health (IDPH), which oversees the state’s medical cannabis program, issued an update on patient numbers and sales figures for March 2022, in which retail medical sales were $32 million, up 13.4% from February 2022 sales of $28.2 million, but down 10.4% from March 2021 sales of $35.7 million.

IDPH reported 206,389 qualifying patients in March 2022, a 2.8% increase over February’s patient count of 200,709 and up 33.2% from March 2021’s patient count of 154,965.

Flower sales within the medical market were $14.6 million in March 2022, up 10.7% from February medical flower sales of $13.2 million, but down 12.5% from sales of $16.7 million in March 2021. Patients in the medical cannabis program purchased an average of 17.3 grams of flower in March 2022 versus 16.6 grams in February 2022. Patients paid an average of $12.52 per gram, up $0.17 from the February gram price of $12.35 per gram. Flower sales made up 45.7% of total medical sales in March 2022, down from 46.8% of sales in February 2022 and down from March 2021’s flower market share of 46.7%.

May 3, 2022

Will the Oregon Moratorium on Cannabis Business Licenses Really Work?

Photo: Zan/Unsplash

The Oregon Liquor & Cannabis Commission (OLCC) announced last week that it is formally implementing a moratorium on issuing new cannabis business licenses “to applicants who submitted an application after January 1, 2022.” The moratorium was enabled by legislation passed last year, which we covered at the time; it applies to all license types and will remain in effect for two years.

The OLCC statement says that the state’s market has “experienced exponential growth, which has led to a crowded marketplace.” By some measures, however, growth has been slowing in Oregon’s legal cannabis market as of late, with 2021’s sales of $1.18 billion up just 6% over 2020’s tally of $1.11 billion, the smallest year-on-year increase in legal sales since they began in 2016. On the other hand, production and supply increased at impressive rates in 2021, with the state’s outdoor harvest volume wet weight ballooning by 55% year-on-year and indoor harvest volume jumping by about 30%.

Oversupply and a saturated market have led to wholesale prices falling to extremely low levels in Oregon, with competition in the retail sector also leading to reports of rock-bottom prices and shrinking margins, where they still exist. Whether the new moratorium will work to ameliorate the state’s current cutthroat market conditions remains to be seen.

If history is any guide, it is unlikely that the moratorium will have a prompt and direct impact on the existing market landscape. Oregon officials previously limited the issuance of new producer licenses in 2018, with a formal moratorium on that license type put in place in June 2019 by the passage of legislation. However, since previously submitted applications could still be processed under the terms of the moratorium, as is the case with the new moratorium, the number of producer licenses continued to expand. Information from OLCC shows 1,136 active producer licenses as of the end of June 2019. The most recent information available from the Commission lists 1,395 active producer licenses as of mid-March 2022. As noted above, harvest volumes increased substantially in 2021 – and in 2020 as well – despite the previous moratorium remaining in effect.

April 26, 2022

Arizona Recreational Marijuana Sales Chipping Away at Medical Market

Cathedral Rock, Arizona
Photo: Kaileen Fitzpatrick/Unsplash

The Arizona Department of Revenue (ADOR) published cannabis tax collections and estimated sales information for February 2022, when combined adult use and medical sales were $121.2 million, down 2% from an upwardly revised $123.7 million in January 2022. Year-on-year, the first full year of adult use sales shows an increase of 27.8% in total sales, an increase in adult use sales of 72.8%, and a decrease of 4.7% in medical sales. The adult use market share has climbed in the majority of months over the first year of sales and recently jumped over the 50% mark. As with other states with well-established medical markets in which an adult use market is introduced, the adult use market slowly bleeds away medical use market share.

Arizona Marijuana Sales
Arizona Medical vs Recreational Marijuana Sales

The lower January and February 2022 sales figures are likely a function of sharply lower cannabis prices in part, as well as perhaps indicating Arizona, like other states, may be seeing a seasonal demand trend, in which sales dip slightly after the holiday season.

Arizona February medical sales were $52.5 million, down 6.5% from a downwardly revised $56.1 million in January 2022 and down 4.7% from an upwardly revised $55 million in February 2021. Medical sales were 43.3% of total sales in February 2022, down from 45.4% in January 2022 and down from February 2021’s medical market share of 58.1%.

These data provide some evidence of medical consumers migrating to the adult use market, despite the 16% excise tax imposed on adult use consumers. Depending on their purchasing frequency and how much they spend, former medical consumers find the adult use market less expensive than maintaining registered patient status.

April 19, 2022

Cannabis Licensing Process in Massachusetts to Ensure Social Equity

Boston Skyline at Night
Photo: Venti Views/Unsplash

Massachusetts adult use sales data for March 2022 was recently posted on the state’s Open Data Platform. March 2022 adult use retail sales, at $120 million, were up 9.4% from a downwardly revised $110 million (previously $117.9 million) in February 2022 and up 12.8% from March 2021.

Average daily sales in March 2022 were a bit under $3.9 million versus a downwardly revised $3.9 million plus in February 2022 (from $4.2 million).

Massachusetts Retail Cannabis Sales

Massachusetts Cannabis Control Commission (CCC) also provides information on the number of licensed and operating cannabis businesses in the state. As of the end of March 2022, there were 83 cultivators, up four from February 2022’s count; six couriers, unchanged from February; 12 testing laboratories, up four from February; six microbusinesses, unchanged from February; 62 product manufacturers, up one from February; 213 retailers, up 15 from February; and four third-party transporters, up one from February.

The Open Data platform provides monthly average retail flower prices for the adult use market. March 2022’s average retail flower price fell 3.2% to $339.01 per ounce and is down 5.4% this year.

Massachusetts spot prices have fallen 23.6% this year. The move lower has been attributed to bulk deals struck at lower than prevailing prices at the time of the deals. Prices are unlikely to recover to the mid-$3,000s with New York, New Jersey, and Connecticut slated to open adult use sales, which should take away some demand from residents of those states who have patronized Massachusetts retailers to this point.

The CCC recently issued guidance that conveyed a sophisticated understanding of corporate finance not typically found in such documents. The guidance was issued and opened for public response due to “the industry’s maturation and evolution,” necessitating further clarity on ownership and control of cannabis businesses in Massachusetts. “Delivery Courier and Delivery Operator” licensees were addressed specifically.

The release is an effort to reiterate legislatively mandated limits on adult use license ownership. The CCC document offers clarity on the legislative intent of rules governing this area “as a way to ensure that bigger businesses do not crowd out smaller competitors.”  The matter is open for public comment between April 11, 2022, and May 2, 2022 at 5 pm. For further details and how to submit comments, see the full document here.

While the ownership guidance was clear, it seemed to be addressing corporate finance schemes perhaps created to take advantage of social equity applicants who lack access to affordable banking and who are possibly less knowledgeable about financing that might affect their ownership stake in their own businesses. In reading the guidance, questions arose regarding social equity applicants’ potential vulnerability to sophisticated lending agreements that might convey ownership to the lender at some point, as well as whether the state itself might consider financing social equity applicants so they will not fall prey to such lenders.

In an interview with Cannabis Benchmarks, the Chairman of the CCC, Steven Hoffman, acknowledged the thrust of the guidance was meant to “protect cannabis businesses and social equity applicants” undergoing “financing challenges.” When asked if multi-state operators (MSOs) were engaging in such behavior, Hoffman was clear, “the MSOs are adhering to state mandated ownership limits” and are not involved in predatory schemes. According to Hoffman, it seems “private equity are proposing predatory” lending schemes to “social equity businesses,” some of which might “trigger effective control” of such businesses. Hoffman noted the CCC has been working on issues of predatory lending and the sources and structures of such deals for some time now. Hoffman has expertise in the private equity world, which has clearly been deployed in his role as chairman. His understanding of finance and private equity is now being utilized to support and protect social equity applicants from such schemes.

When asked about the likelihood of Massachusetts starting a state bank to finance small and social equity businesses, Hoffman cited two reasons the notion of a state bank was “quickly shot down:” “the state does not want to be in the banking business” and “there was no government support for cannabis,” but rather a voter initiative that ushered in adult use legalization in Massachusetts. Hoffman said he “thinks a state bank is a good idea” and proposed it to state leaders to no avail. However, he did point to a bipartisan senate bill – S. 2801 – An Act Relative to Equity in the Cannabis Industry. The bill will create a new fund to support equity in the cannabis industry and improvements to the local licensing process.

Ranging a bit further afield, Hoffman said he was aware of the sell-off in wholesale prices and the seeming disconnect with retail prices as indicated in CCC’s monthly data. He noted that “wholesale prices are a leading indicator of retail prices” suggesting retail prices will eventually reflect the price drop on the wholesale level. When asked about last fall’s outdoor harvest, Hoffman said part of the legislative mandate was to “incentivize outdoor cultivation” through “reduced fees” for outdoor growers and such applicants “go to the front of the line.” He also noted Massachusetts will license co-ops to help support cannabis businesses. Overall, Hoffman believes the state is “undersupplied in cultivation capacity” although the state has an uncapped licensing scheme. He indicated the uncapped scheme is closely watched over and praised other legal states for advice provided to Massachusetts as they set up their adult use market, noting there is no interstate competition at this point.

Hoffman is well-studied in legacy state cannabis markets and corporate finance. He seems determined to steer Massachusetts around issues that have arisen in other states, especially in consideration of his state’s social equity mandates. Last week’s “Guidance and Control on Ownership” document makes clear that predatory financing schemes are well-understood at the CCC, and any “deals” struck with social equity applicants will be thoroughly vetted to keep social equity participants safe from those who would take advantage of them.

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