Photo: Wesley Gibbs/Unsplash
The Nevada Department of Taxation (NDOT) issued March 2022 Cannabis Tax Revenue figures last week. March sales surged 18.1% month-on-month, breaking a four-month streak of declining sales figures. Year-on-year, retail cannabis sales are down 12.6% from $96.9 million in March 2021, but are up over 95% from March 2020, when the first pandemic crush occurred.
March 2022 adult use retail sales were $75.6 million, up 9.8% from February 2022 sales of $68.9 million, but down 16.7% from March 2021 adult use sales of $90.7 million.
Medical dispensary sales were just over $9 million in March 2022, up an astounding 216.7% from February 2022 dispensary sales of $2.9 million, according to NDOT data. Year-on-year, medical dispensary sales in March 2022 were up 46.8% from March 2021 medical dispensary sales of $6.2 million.
The Las Vegas Convention and Visitors Authority (LVCVA) reports March 2022 tourist volume at 3.3 million, a 27.4% month-on-month increase from 2.6 million visitors in February. LVCVA also supplied some perspective on pandemic effects with its April 2022 visitor data: April 2022 visitor volume is up 31.4% from April 2021 but is down 4.5% from pre-COVID April 2019 levels. The recovery of the tourism industry should add to demand but may not be enough to reverse the price downtrend.
Nevada indoor spot market prices have been under a good deal of pressure, losing 12.4% so far in 2022 and dropping 17.5% since March 2021. Greenhouse prices have fared worse, with the volume-weighted greenhouse price falling 29.5% in 2022. It is likely there is some quality difference between indoor and greenhouse product with the spread of indoor over greenhouse at $709 per pound. The deterioration in greenhouse prices may have spurred some growers to sell into the extraction market, putting further downward pressure on price.
Brandon Wiegand – President of the Nevada Cannabis Association and Chief Commercial Officer at The Source+, a vertically integrated adult use and medical cannabis company in the state – helped explain the state of Nevada cannabis prices in an interview with Cannabis Benchmarks this week. Wiegand said his state’s industry, like many others, is feeling the pinch in the post-COVID environment. He sees the retail sector under a good bit of pressure with falling sales amid falling prices.
Wiegand noted that while Nevadans got back to work like the rest of the country, they are also suffering under inflationary pressures. Service workers dominate the employment landscape in Nevada and any raises that were granted as employers sought to hire are mostly eaten up by inflation. With gasoline at $6.00 per gallon, Wiegand said people must “decide whether to fill my bowl or fill my gas tank.” The bottom line is people are choosing to fill their tanks and the retail cannabis business is suffering from the knock-on effects of such choices.
Adding to the pressure on growers and retailers is the fact that the market is oversupplied. Wiegand said “cultivators and producers increased production” going into 2021 on the assumption that pandemic demand was permanent. Cultivators and producers had good reason for that assumption, Wiegand explained. The pandemic all but stopped the over 3 million tourists that typically visit Las Vegas each month, but local retail traffic picked up and filled in the hole left by the shuttering of the Strip, with sales reaching record high levels even as most tourists stayed home. Additionally, though the federal subsidies dried up, people went back to work – and often at higher wages – so cannabis entrepreneurs reasonably planned for a permanently higher level of demand.
Wiegand guessed that about 14,000 pounds of cannabis is sold per month in the state, but cultivators are growing about 20,000 pounds a month, adding to price pressures from softening demand. According to Wiegand, southern Nevada is where most of the indoor and greenhouse product is generated, but he noted the northern part of the state is where a fairly massive amount of outdoor growing is taking place on tribal lands. Information on outdoor supply is uncertain given cannabis grown by Native American Tribes is not taxed, but Wiegand reckons tribal operations are generating thousands of pounds, “about the same amount of weight” as non-tribal indoor and greenhouse production combined, “but not bigger.”
Wiegand added the tribal cannabis is grown in “an ideal environment; a high and dry with cool temperatures.” He said the outdoor-grown tribal product has a strong retail presence, with “strong customer demand for well-grown outdoor product.” He also noted tribal cannabis makes up a big portion of the raw material in the extraction market. Finally, outdoor-grown product is very competitive on price, with wholesale rates at $900 to $1,100 per pound, well below the wholesale price per pound for indoor product. As a result, retailers are stocking up on the outdoor flower produced by tribal operations.
While the market is currently dealing with excess supply, Las Vegas is on the verge of seeing more retail outlets come online. Wiegand noted there are still 35 conditional licenses that have yet to open their doors. He does not believe the Las Vegas market is underserved, so adding more retailers would likely have the effect of diluting the revenues of existing stores.
When asked about the percentage of retail sales credited to tourism, Wiegand said “it depends on which tourists.” He pointed out, “tourists tend to spend more on retail cannabis purchases,” but “they are not repeat customers.” Tourism is also tricky because “professional sports drafting tourists are vastly different than conventioneer tourism” and “it is challenging for retailers” in that “it depends on what’s in town.” Overall, Wiegand guessed “20% of retail business” is due to tourism.
Wiegand noted cannabis businesses may be overtaxed with the state’s Fair Market Value (FMV) – a price set by the Nevada Department of Taxation and used to calculate businesses’ wholesale excise tax burden – at $2,500 per pound, a price not seen in the Nevada market since 2018. In addition to the FMV used to calculate the 15% wholesale tax, there is also the 10% retail excise tax. Wiegand characterized cannabis as “double-taxed” by the state, referring to the combination of wholesale excise tax with its too-high FMV and the additional retail excise tax.
It appears Nevada cannabis price pressures will continue with oversupply in the indoor and greenhouse markets thanks to expanding canopies post-pandemic. Additional pressure on indoor and greenhouse prices is also coming from the popular and expanding supply of Native American-grown outdoor flower, which can be half the price of top-shelf indoor product. Even as Nevada nears the five-year anniversary of the opening of its adult use market, there are growing pains.