The steadiness of the Cannabis Benchmarks California Spot Index from June to July this year echoes the behavior of the state’s Spot Index in the same span in 2018, although July 2019’s monthly mean is up by 8% compared to a year ago. Viewed from a wider perspective, however, observations of wholesale prices in the Golden State through the first seven months of 2019 have diverged significantly from those in the same period in 2018.
In 2018, California’s Spot slid downward for the most part from the outset of the year through the end of July. During that span, it fell by 23.8% per pound. This year, the state’s composite price has been more stable, but has fluctuated up and down from the beginning of the year to the current moment. Overall, the Spot price reported at the close of July is up by 4.6% relative to the rate per pound documented at the beginning of 2019.
California’s composite price would continue to slide through the end of summer and into the fall of 2018, albeit gradually. Last year, the state’s Spot average in August was off by 1.4% from the month prior. September 2018 would see California’s overall volume-weighted average slip slightly before the fall harvest pulled the state’s monthly mean for October down by 4.1%.
Wholesale market conditions in California were very different at this time last year. In August 2018, about 3,000 temporary cultivation licenses had been issued by the state Department of Food and Agriculture (CDFA). We recently reported that just under 2,550 cultivation licenses of all types remained active in California’s market as of late July.
While those numbers are not dramatically different, it must be noted that the state’s Cannabis Track-and-Trace (CCTT) system was not in use until this year, which made the regulated market porous to inflows and outflows of unlicensed production. As of late July 2019, almost 94% of cultivation licenses issued were annual or provisional permits, which require the license holder to use CCTT. Additionally, there were fewer retailers up and running in California’s licensed market in Q3 last year relative to today. By the end of 2018, there were about 540 legal storefronts in the state, a number that has swelled to over 625 as of earlier this year.
Overall, given the fact that fewer licensed growers subject to greater oversight are supplying a larger number of more established retailers, market dynamics appear to indicate that the sliding wholesale prices observed during August and September of 2018 may not be in the cards this year. How the fall harvest will impact wholesale pricing in California in the first year that CCTT is in place remains something of an open question.