A recent California Bureau of Cannabis Control’s (BCC’s) weekly report shows that products generated by licensed cultivators and processors continue to clear required screenings in increasing proportions. Additionally, the update, in conjunction with data provided exclusively to Cannabis Benchmarks by the BCC, provides a glimpse of the volume of flower moving through California’s regulated market, although some qualifications may apply.
According to the BCC update, 33,040 batches of all product types were submitted for California’s compulsory quality assurance and safety testing as of February 1st. Of those batches, 4,072, or 12.3% failed for some reason. Two months ago, at the beginning of December 2018, over 14% of batches were failing mandatory screenings, prior to new tests being added at the end of last year. Furthermore, those figures are lower than the almost 19% failure rate documented about a month after an expansive slate of stringent new screenings was put in place in July 2018.
So far, only 51 total batches failed screenings for heavy metals and water activity, the new tests which only became required at the end of 2018. Consulting the first BCC weekly report issued in 2019 shows that over 4,300 batches have been tested in the opening month of this year. However, batches of product harvested or manufactured in 2018 are not subject to screenings for heavy metals or water activity, so many of the over 4,300 submitted in January were probably being tested to the standards that applied in H2 2018. Given that exemption, it is likely too early to tell whether the new heavy metals and water activity tests will impact discernibly the amount of supply available in California’s wholesale market.
Also, regarding required testing, BCC spokesman Alex Traverso earlier this month provided data to Cannabis Benchmarks on the average size of batches of flower submitted for mandatory screenings. According to Traverso, batches of bulk flower submitted for testing between July 2018 and early this year averaged roughly 16.5 pounds. The BCC’s report shows that, as of February 1st, 15,470 batches of flower have passed the state’s compulsory screenings.
Presuming that all flower that passed testing has “entered the commercial market,” in the parlance of California regulators, that means that 255,255 pounds of flower have been sold by licensed California cultivators in the seven-month span from July 2018 through the end of January 2019. (Traverso also confirmed to Cannabis Benchmarks that the period covered by the BCC’s weekly reports commences on July 1, 2018, rather than January 1, 2018, as some outlets have reported.)
The volume of flower traded in California’s regulated market in the preceding seven months is surprisingly small at first glance. For context, Colorado cultivators sold or transferred over 411,000 pounds of flower in all of 2017, an amount that we expect to increase slightly in 2018. It must be noted, however, that only about 540 retailers were licensed in California by the end of 2018, less than the 550 permitted adult-use storefronts in Colorado at the same juncture, with not all the California stores operating throughout the entire year. Given that fact, it is possible that licensed retailers in California are buying comparable amounts of flower relative to those in Colorado.
However, as we have reported previously, multiple market participants stated to Cannabis Benchmarks last year that they suspected product from unlicensed sources was making its way into the regulated market. This is possible due to statewide plant and inventory tracking software not being required of California cannabis businesses that held temporary licenses, as essentially all operators did throughout 2018. Such product would not be accounted for in testing data, potentially explaining the surprisingly small volume of flower traded that is indicated by examining such information in isolation.
In our upcoming Annual Review & Outlook we estimate the volumes of flower traded in the state markets covered in our reporting, as well as their dollar values. We will engage in a more extensive examination of sales and tax collection data out of California’s market, in combination with the testing information discussed here, in order to formulate a more informed estimate of the amount of flower and trim that changed hands in the Golden State’s licensed system in 2018.