cannabis benchmarks weekly report -- published september 1, 2017
U.S. Cannabis Spot Index up 1.1% to $1,626 per pound.
The simple average (non-volume weighted) price increased $42 to $1,870 per pound, with 68% of transactions (one standard deviation) in the $1,058 to $2,682 per pound range. The average deal size increased 22.4% to 10.4 pounds from 8.5 pounds last week. In grams, the Spot price was $3.58, and the simple average price was $4.12.
The trading frequency and relative volume of warehouse flower both increased this week, by 7% and 4%, respectively. Just weeks ahead of the first fall harvests, outdoor product’s share of the total observed weight moved declined by 5% week-over-week. The relative volume of greenhouse flower held fairly steady, increasing by just 1%, while average deal sizes for transactions involving such product increased by almost 50% compared to last week.
Indoor flower spanned from $999 to $5,900 per pound; the median price was $1,910lb.
Greenhouse flower spanned from $1,000 to $3,200 per pound; the median price was $1,305/lb.
Outdoor flower spanned from $700 to $1,600 per pound; the median price was $1,100/lb.
The U.S. Spot Index ticked upward slightly to open September, increasing by just 1.1% this week after last week’s over 5% jump. Pricing for indoor flower declined this week after seeing an more than 9% spike last week, while the volume-weighted average rate for outdoor product also decreased to fall just below $1,100 per pound. Greenhouse-grown flower’s pricing saw a modest increase and has in general been the most stable of the three grow types in recent weeks.
For the second consecutive week, no new year-to-date pricing extremes were observed. In fact, national rates for each individual grow type tracked very closely to their year-to-date averages, emphasizing the overall pricing stability that has characterized this year. This week’s volume-weighted rates for indoor and greenhouse flower are within $3 and $2, respectively, of their current 2017 averages, while outdoor product pricing is off just $29 from its average for the year thus far, which is $1,127 per pound.
After seeing two consecutive weeks of gains, the trend line of the U.S. Spot Index flattened this week. Though it has been fairly stable overall this year, it has moved in modest up-and-down fashion to this point. It ascended from the beginning of the year through April, began declining in mid-May through the end of June, then rose until early August before declining slightly through the rest of that month. Notably, Oregon’s Trailing 4-Week Average flattened this week for the first time this year, signalling some stability in the state’s nearly year-old licensed adult-use market just as the fall harvest is looming. The trend lines of the Spot Indices of Colorado and Washington State both continued their discernible upward momentum for the second consecutive week.
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.
Similar to the first week of August, this week saw pricing for product in medical and adult-use markets move in divergent directions, with the former rising to increase its premium over the latter. Despite an over $150 dip in Arizona’s Spot Index, a rise in California’s composite price pushed national rates for flower in medical systems upward. The adult-use states of Colorado, Oregon, and Washington State all saw modest declines in their state Spot rates.
March 2018 Forward assessed at $1,570 per pound.
Forward arrangements represented nearly 6% of overall market activity this week. The average forward deal decreased to 35 pounds, from 43 pounds last week. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower represented 17%, 58%, and 25% of forward arrangements, respectively. The average forward deal size for monthly delivery for outdoor, greenhouse, and indoor-grown flower was 34 pounds, 37 pounds, and 30 pounds, respectively.
With future weather conditions during the final flowering and harvest period for outdoor growers still uncertain, and the pace of supply growth in California and Nevada in the first quarter remaining a wild card, market participants currently lack direction on forward prices into the new year. Last year’s average wholesale prices were virtually flat from February to March. Consequently, the initial assessment of the March 2018 Forward is consistent with last year’s observations and the current lack forward market clarity.
At $1,470 per pound, the October Forward represents a discount of 9.6% relative to the current U.S. Spot Index of $1,626. The premium or discount for each forward price, relative to the U.S. Spot Index, is illustrated in the table below.
Sample content from this week's Premium Report:
This week’s increase in California’s composite volume-weighted average was driven entirely by an over 6% spike in the rate for greenhouse-grown flower, which rose to settle at $1,585 per pound. This week’s price for product grown under glass or tarp was the highest observed since the week ending June 30th and is up 15.7% from the recently-established year-to-date low of $1,370 per pound, documented on July 21st.
Pricing for indoor product continues to hover around the $1,800 per pound threshold. Last year, the monthly rate for such flower dropped by 3.4% from August to September, then leaped by 7.6% between September and October.
A deadline that passed this week could mean additional expenses for cannabis business operators in Sonoma County who plan to apply for a local permit in the future. According to the Santa Rosa Press Democrat, while there is no deadline to apply for a local license, county officials had put in place a penalty relief program for existing operators, with the promise of reduced land-use fines if applications were received by August 31st. However, the report states that only about three dozen applications for local cannabis business permits have been received, with less than two dozen of those coming from the estimated 5,000 growers operating in the jurisdiction.
The Press Democrat report quotes the Sonoma County permitting department as stating that applying for a local permit can run between $2,000 and $13,000, depending on the type of license. Apparently, even though the penalties that would have been reduced by applying prior to this week’s deadline can increase permitting costs by between three and ten times, the prospect of their alleviation was not sufficient to motivate existing growers and other operators to apply.
It should be noted, though, that the paltry number of applications received by the county may be attributable to difficulties other than lack of motivation. The aforementioned report notes that growers are required to obtain assessments from consultants on matters such as energy usage and environmental issues, a costly and time-intensive prospect. Additionally, all of these costs come at a time when the cash flow of outdoor farmers can be tight, as this year’s full-term harvests will not begin for at least a couple weeks, with revenue from those crops further delayed until after flower can be trimmed and sold. Overall, the current situation in Sonoma County illustrates how cultivators will be forced by new regulation to fundamentally alter the manner in which they manage their inventory and cash flow in order to meet new obligations imposed by state and local governments.
Sample headlines from this week's Premium Report:
1 September 2017. Copyright © 2017 New Leaf Data Services, LLC. All rights reserved