Weekly Report -- Published on 21 April 2017
Over 65 pages of detailed commentary and analysis including:
2016 U.S. Wholesale Cannabis Market Highlights
Monthly Price Data for the Largest Wholesale Markets
Trends That Defined 2016
What To Watch For In 2017
Price Volatility And Emerging Markets
Commodity Price Correlation
U.S. Cannabis Spot Index unchanged at $1,655 per pound.
The simple average (non-volume weighted) price decreased $18 to $1,789 per pound, with 68% of transactions (one standard deviation) in the $1,059 to $2,518 per pound range. The average deal size decreased 8.8% to 6.5 pounds this week, from 7.1 pounds last week. In grams, the Spot price was $3.65, and the simple average price was $3.94.
Sun-fueled production again increased its share of the total observed volume traded this week. Indoor product’s portion of the documented weight moved shrank by 4% compared to last week, with the corresponding gain accruing entirely to outdoor flower. The greater prevalence of outdoor flower corresponds to reports from market participants, which told of retailers on the hunt for inexpensive product in order to stock their shelves with sufficient low-priced inventory to satisfy consumers hunting for 4/20 bargains.
Indoor flower spanned from $800 to $6,400 per pound; the median price was $2,000/lb.
Greenhouse flower spanned from $987 to $3,200 per pound; the median price was $1,305/lb.
Outdoor flower spanned from $725 to $2,000 per pound; the median price was $1,400/lb.
After two straight weeks of marginal price declines, the U.S. Spot Index was flat this week, despite the 4/20 holiday. A slight uptick in rates for indoor product was offset by declines in volume-weighted average pricing for greenhouse and outdoor flower, with the latter seeing an almost 8% drop-off to fall below $1,150 per pound. Overall, rates for all grow types have been relatively steady in recent weeks, particularly when considering that 4/20 has spurred dramatic price movement in years past.
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.
After several weeks of charting largely parallel courses, the movement of pricing for medical and adult-use product diverged this week, with the former rising and the latter experiencing an over 4% week-over-week decline. This week’s premium of $414 commanded by flower designated for sale in medical markets was the second-largest observed this year, behind a $427 premium documented in early February. Pricing for product in adult-use markets has not exceeded that of medical flower since early December 2016.
May Forward down $20 to $1,730 per pound.
Forward arrangements represented 4.6% of overall market activity this week. The average forward deal decreased to 15 pounds, from 17 pounds last week. The proportion of forward deals for outdoor, greenhouse, and indoor-grown flower represented 47%, 27%, and 27% of forward arrangements, respectively. The average forward deal size for monthly delivery for outdoor, greenhouse, and indoor-grown flower was 16 pounds, 16 pounds, and 13 pounds, respectively.
The May Forward decreased $20 to $1,730 per pound, representing a premium of 4.5% relative to the current U.S. Spot Index of $1,655. The premium or discount for each forward price, relative to the U.S. Spot Index, is illustrated in the table below.
With the national price essentially flat over the past few weeks, buyers appear to have improved supply chain management, avoiding the wholesale price bump that accompanied the run-up to the 4/20 industry festivities in prior years. What is difficult to ascertain is how much growth in overall supply contributed to the current price stability versus smarter buying and better forecasting of consumer demand. Despite the drivers behind April’s stable wholesale prices, the fact remains that greater supply and competition have driven prices lower. For context, the U.S. Spot Index averaged $1,976 per pound for the month of April 2016. So far, the U.S. Spot Index has averaged $1,663 this month, off $313 per pound, or 15.8% from last year, reducing expectations for significant price growth in the months ahead. At $1,730 per pound, the May Forward is $329 lower, or 16%, than the average price of $2,059 per pound during May 2016, the month in which national composite prices reached their peak last year.
Sample content from this week's Premium Report:
As the Florida legislature continues to advance separate proposals with differing approaches to regulating the state’s expanded medical cannabis program, the Palm Beach Post reports that both the state House and Senate measures would disallow smokeable products. Banning the sale of raw cannabis flower and smokeable products is an approach first pioneered by Minnesota’s small medical cannabis program, and has been followed by New York. Other medical cannabis programs yet to get underway, such as those of Pennsylvania and West Virginia, noted below, also have such restrictions incorporated into their laws. Disallowing flower raises costs for producers and consumers, as raw plant material must be processed, frequently by costly equipment, prior to sale. Additionally, it can lead to lower patient counts, as some who use medical cannabis for therapeutic purposes claim that smoking is uniquely beneficial in relieving their ailments. In such cases, individuals will likely continue to obtain product through informal channels, rather than spending significant sums on manufactured products from licensed businesses. We will continue to report on developments in Florida as lawmakers work to formulate rules for the state’s expanded medical cannabis program.
North Dakota Governor Doug Burgum this week signed into law a measure amending and implementing the ballot initiative to legalize medical cannabis that was approved by voters in November’s election, according to the Associated Press. The program will be a small one, with only two licensed producers and eight dispensaries to serve a state with a population of just over 750,000. The AP report notes that the state Health Department anticipates that five of every 1,000 residents will register as a medical cannabis patient, which equates to a patient pool of less than 4,000, and that smoking cannabis will be allowed only if a physician or other eligible health professional recommends it. Still, entry costs are high; producers face license fees of $110,000 every two years, while dispensaries will be charged $90,000 for their two-year permits. Officials in North Dakota expect medical cannabis to be available in about 12 to 18 months, noting that rulemaking must also take place.
This week, West Virginia Governor Jim Justice signed into law a bill legalizing medical cannabis, as well as providing for the licensing and regulation of businesses to produce and distribute the product, according to the AP. Previously, we discussed some aspects of the West Virginia measure in our report for April 7th. Licenses are not expected to be issued until mid-2019.
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