Weekly Report -- Published on 29 July 2016
U.S. Cannabis Spot Index down 2.4% to $1,664 per pound, its lowest price of the year. The simple average (non-volume weighted) price increased $2 to $1,980 per pound, with 68% of transactions (one standard deviation) in the $1,465 to $2,494 per pound range. The average deal size increased 13% to 10.8 pounds. In grams, the spot price was $3.67, and the simple average price was $4.36.
This week’s transaction statistics were similar to last week’s, with deals for indoor grown flower - down 1% to 83% - still dominating the mix and driving a nominal increase in the simple average price. The contribution by weight of greenhouse grown flower increased to 34% from 27% last week, while the proportion of the weight from outdoor and indoor grown flower both decreased.
Indoor flower spanned from $1,100 to $4,000 per pound; the median price was $2,000. Greenhouse flower spanned from $1,300 to $3,000 per pound; the median price was $1,500. Outdoor flower spanned from $1,100 to $1,800 per pound; the median price was $1,300.
Deal sizes for indoor flower ranged from 0.25 to 52.5 pounds.
Deal sizes for greenhouse flower ranged from 1 to 250 pounds.
Deal sizes for outdoor flower ranged from 1 to 150 pounds.
While the price of indoor grown flower recovered $47 per pound from last week, further price declines for greenhouse and outdoor grown flower drove the U.S. Spot Index to a new low of $1,664 per pound. At $1,233 per pound, the price of outdoor grown flower also reached a record low.
The U.S. Spot Index has declined 19% since July 1st, driven by declines in the prices of greenhouse and outdoor grown flower; the latter declining 25% since July 1st, and 27% since June 3rd.
After a marginal increase last week, the only week-on-week rise in a month of declining prices, the US Cannabis Spot Index fell again as July nears its close. Prices for indoor product were buoyed a bit, largely by deals outside of the four major western markets, while prices for outdoor and greenhouse-grown flower fell and drove down the national volume weighted average. With the exception of Oregon, this week’s state-level breakdowns illustrate another instance of significant volumes of greenhouse product moving state indices downward.
Sample headlines from this week's Premium Report:
August Forward closes down 4.4% to $1,625 per pound.
The August Forward was first assessed at $2,250 per pound the first week of February, 26 weeks ago. At that time, the U.S. Spot Index was at $2,050 per pound and the August Forward represented a premium of nearly 10%. With the increased focus on pesticide issues nationally, and the impending implementation of medical marijuana testing in Colorado, market participants were anticipating summer price spikes resulting from significant amounts of tainted supplies being quarantined and/or destroyed. Additional upward pressure on prices was expected as the conditions for a perfect storm were forming, specifically that the testing-related reductions in supply could potentially coincide with both the higher prices that typically accompany higher temperatures and the depletion of inventoried supplies from the prior fall harvest.
Indeed, a perfect storm arrived; however, not the one the many market participants expected. As we described last week, implementation of testing regulations have been delayed in many markets as regulators endeavor to ensure testing compliance frameworks that are both pragmatic and effective, temporarily postponing compliance-related costs. The deferment of these expenses has been compounded by unexpectedly abundant supplies from last year’s harvest continuing to flood markets, as well as more growers producing more harvests per year and with higher yields. In the intervening months since February, the August Forward declined $625 per pound, and currently represents a discount of 2.3% relative to the U.S. Spot Index.
This week’s forward volume represented 13% of the total number of observed spot and forward transactions, unchanged from last week. 82% of the forwards had durations of at least two months, and 46% had durations of at least three months. 34% had durations extending through the fall harvest and into January. The premium or discount to the U.S. Spot Index are illustrated in the table below.
36% of this week’s reported forwards were for monthly deliveries and ranged from 1 to 250 pounds. 64% of this week’s reported forwards were for weekly or biweekly deliveries and ranged from 5 to 100 pounds. The average forward deal was 21 pounds.
Forward prices ranged from $1,100 per pound for 50 pounds of outdoor grown flower remaining from last year’s California harvest to $3,200 per pound for 8 and 10 pound lots of indoor grown flower in Nevada. Multiple 100-pound lots in California ranged from $1,200 per pound for outdoor grown flower to $1,500 per pound for greenhouse grown flower. In Washington, a two-month forward for 250 pounds per month for greenhouse grown flower was priced at $1,400 per pound.
The distribution of forwards by grow type was 6% outdoor, 16% greenhouse and 78% indoor, and were reported from California, Colorado, Oregon, Washington, Nevada, Arizona, Michigan, Maine and D.C.
The resumption of falling prices driven by sun-grown product this week after last week’s marginal rise presages a trend that will likely hold for much of the remainder of the year. Based on the timing of the first surge of greenhouse product that initiated this year’s atypical summer price slump, additional light-deprivation harvests will likely be cut down toward the second half of next month, though the effects may not be felt in markets until late August or early September. After that, fall harvests of full-term outdoor and greenhouse product will commence and continue through November, with operators in certain climates able to continue running plants protected by hoop houses into December.
Nearly all indicators point to supply-flooded markets come fall and winter, though the implementation of Oregon’s stringent testing program remains a wild card that could crimp, or at least slow, the amount of supply reaching that state’s market. Still, last winter we observed a quicker-than-usual price rise after the fall harvest, which itself accompanied a post-harvest drop that was not as severe as in years past. We have now seen that this was at least in part due to farmers holding back product in an effort to garner higher prices in spring and summer. It should also be noted that, as cultivators scale up, extractors and processors often lag behind, as expanding such operations requires expensive equipment and stringent permitting processes from state and local regulators. As such, producers sometimes end up holding and storing product that is to be processed as extractors work to keep pace with ever-expanding volumes. The low prices of this summer, combined with those to come in fall and winter, will force producers to formulate new strategies to maintain their pricing power, though it will be difficult in face of so much supply and it is hard to imagine that buyers will not have the upper hand for much of the rest of the year.
Sample headlines from this week's Premium Report: