2017 Mid-Year Wholesale Market Report
Cannabis benchmarks weekly report -- published october 6, 2017
U.S. Cannabis Spot Index down 5.6% to $1,455 per pound.
The simple average (non-volume weighted) price decreased $12 to $1,776 per pound, with 68% of transactions (one standard deviation) in the $1,130 to $2,421 per pound range. The average deal size increased 14.7% to 15.5 pounds from 13.5 pounds last week. In grams, the Spot price was $3.21, and the simple average price was $3.91.
Outdoor-grown flower saw its share of the national supply mix increase for the third consecutive week, more than doubling last week’s relative volume of 8% despite the relative frequency of trades for such product increasing by just 2% week-over-week. Indoor flower’s share of the total observed volume traded fell by 6% compared to last week, while that of greenhouse product also contracted, by 5% week-over-week.
Indoor flower spanned from $900 to $6,000 per pound; the median price was $2,000/lb.
Greenhouse flower spanned from $750 to $3,000 per pound; the median price was $1,305/lb.
Outdoor flower spanned from $500 to $1,800 per pound; the median price was $1,050/lb.
The U.S. Spot Index fell for the third consecutive week, by almost 6%, to establish a new year-to-date low. Volume-weighted average prices for all three grow types were down week-over-week. Average deal sizes for outdoor flower spiked this week, exceeding 50 pounds. The trading of significant volumes of such product helped to push down the national going rate for field-grown flower by just over 10%.
Both Washington and Colorado saw their state Spot Indices fall to new annual lows, with the latter establishing the lowest state-level composite price in the history of our reporting.
Several new pricing extremes were documented this week, all of them new year-to-date lows. On the national level, the U.S. Spot Index and the price for warehouse-grown flower fell to new annual low rates of $1,455 and $1,673 per pound, respectively. Also in Washington, both indoor and greenhouse product slid to year-to-date low rates. Finally, warehouse flower in California fell to a new annual low of $1,685 per pound.
While prices for indoor and greenhouse flower in Oregon remain in rarefied air relative to the other major Western markets, the going rate for outdoor product in the Beaver State is the lowest for an individual grow type observed in the country this week.
California’s Spot Index settled above the national average for the fifth consecutive week, but by less than $10, after settling almost $75 above the U.S. Spot last week. Washington State’s composite price increased its distance below the national average even as the latter declined.
The table below illustrates the U.S. Spot Index, along with the volume weighted averages for all transactions accompanied by a medical or recreational / adult-use designation.
A steep decline in the national volume-weighted average price for product traded in medical markets tightened the premium commanded by such flower over that in adult-use systems to less than $150 per pound, down from almost $250 last week. The precipitous drop in California’s state Spot Index was primarily responsible for falling medical cannabis rates nationally.
April 2018 Forward assessed at $1,625 per pound.
In a clear sign that the fall harvest has arrived, the average forward deal increased to 99 pounds, from 44 pounds last week. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower represented 50% (up from 16% last week), 36%, and 14% of forward arrangements, respectively. The average forward deal size for monthly delivery increased dramatically for all grow types, with outdoor, greenhouse, and indoor-grown flower at 141 pounds, 63 pounds, and 40 pounds, respectively. The most significant increase was for outdoor flower which rose 78 pounds (from 63 pounds to 141 pounds), with forward deal sizes ranging from 30 pounds to 500 pounds. The doubling of the average forward deal size for indoor grown flower from 20 to 40 pounds raises the question: Are more buyers securing supply for specific brands/strains/products, or are indoor growers increasingly seeking to hedge price volatility - in particular price declines - potentially associated with increasing outdoor and greenhouse production capacity?
While Forward prices into the new year maintain much of the stability witnessed the first half of 2017, market participants are anticipating higher prices now than a few months ago. Although mature commoditizing markets like Colorado and Washington could continue to witness declining prices, a variety of potential bottlenecks in California and Michigan could drive prices up, as officials in those states work to impose licensed, regulated systems later this year. Nevada, as a truly unique market, which we discuss in the Spot Index commentary, remains something of a wild card, with general uncertainty on that front contributing to the upward movement of this week’s Forward prices.
At $1,400, the November Forward represents a discount of 3.8% relative to the current U.S. Spot Index of $1,455. The premium or discount for each forward price, relative to the U.S. Spot Index, is illustrated in the table below.
Sample headlines from this week's Premium Report:
Sample content from this week's Premium Report:
With the opening of Q4 2017, it may be useful to compare the performance of California’s Spot Index in Q3 with that which was observed in the same period last year, as well as to review its behavior in Q4 2016 for potential indicators as to what might be expected in the coming harvest season.
Over the course of Q3 2017, California’s Spot Index averaged $1,594 per pound, up by just under 1% compared to Q2’s average composite rate of $1,579 per pound. Interestingly, California’s Spot Q3 2017 Spot price is up year-over-year, by 2.4%, compared to Q3 2016’s average rate of $1,557 per pound. Monthly composite prices declined from July to August in both 2016 and 2017; last year, they fell 2.9%, from $1,629 to $1,582 per pound in that span. This year, they slid by a similar proportion - 2.5% - from $1,591 per pound in July 2017 to $1,552 per pound in August.
However, whereas in 2016 California’s Spot dropped to $1,460 per pound in September, off 7.7% from the month prior, this year the state’s composite rate jumped to $1,631 per pound in September, up 5.1% from the previous month. This was due mostly to greenhouse product pricing, which was elevated in September relative to the earlier months of the quarter. Outdoor flower saw its rates dip below $1,000 per pound in late July, as well as early September, but closed last month on the rise. Volume-weighted average rates for indoor-grown product have been the steadiest of all three grow types through Q3 2017. In 2016, Q3 saw pricing for each grow type decline in each month.
That trend was reversed in October 2016, when rates for all three grow types in California were up month-over-month. October 2016’s Spot price for the Golden State - $1,404 per pound - was down compared to the month prior, however, as the supply mix in the state came to be dominated by lower-priced sun-grown product recently brought in from fields and greenhouses. The state’s Spot would continue to fall in November, reaching its annual trough of $1,314 per pound. It would rebound to close the year, averaging $1,400 per pound in December. Overall, Q4 2016’s Spot price for California of $1,373 per pound was off 11.8% compared to Q3 2016’s average going rate.
More detailed analysis along these lines can be found in our Annual Review & Outlook: 2016-2017 Edition, which can be purchased in a bundle with our recently-released 2017 Mid-Year Wholesale Market Report. As we discuss in the newly-published report, market participants hoping to participate in California’s imminent licensed system are working to preserve value for their crops and generate revenue needed to meet new compliance requirements. However, the need for fast cash may also result in growers dumping large lots of product in Q4, a time of year that is typically a buyer’s market already due to the seasonal harvest. While rates will almost surely fall as the harvest continues to come in and make its way to market, the need to meet compliance costs and fewer options for legitimate trading could mitigate the traditional autumn price crash.
6 October 2017. Copyright © 2017 New Leaf Data Services, LLC. All rights reserved