Weed Index: Wholesale pot prices at all-time low in Colorado
Wholesale Marijuana Market Highlights
Cannabis Benchmarks presents what the company claims is “an unparalleled picture of the supply side of one of the country’s most dynamic industries, documenting, analyzing, and explaining novel market developments and events.” Below is a bullet-point list of key takeaways from the company’s 2017 mid-year report.
• The U.S. Spot Index is down significantly year-over-year, as the new pricing reality that was established in the second half of 2016 has been maintained.
• The course of the U.S. Spot Index through the first six months of 2017 has been marked by relative stability, as well as a return to some more conventional trends, after its unpredictable behavior in the first half of 2016.
• Prices are lower in states with adult-use legalization, even though demand is significantly stronger. Generally, this is due to those states allowing production that is more than adequate to meet demand, with hundreds of businesses vying fiercely for market share and consumer attention, while also being forced to implement efficiencies in cultivation and product manufacturing in order to compete and stay afloat.
• Combined with the small proportion of the state’s existing growers that have come forward to register with their local jurisdictions, it appears that California’s licensed marketplace in early 2018 will constitute a small fraction of the commercial cannabis activity currently being carried out in the state. In the near term, fractured supply chains and fewer options for trading could lift wholesale rates in the legal realm through the end of the year.
• Certain characteristics and conditions of Nevada’s market, combined with unique regulatory circumstances, prevented a wholesale price increase until just prior to the opening of retail adult-use sales on July 1.
• Although last year we observed Michigan’s Spot Index to decline in each month from August through November, it is possible that the regulatory uncertainty this year could lead to stable or even rising rates in Q4. If in fact dispensaries are forced to close their doors on Dec. 15, we could see a significant surge in demand from patients looking to stock up on enough product to hold them through what could be a period in which access is difficult. Michigan medical grows are small-scale operations, meaning that cultivators do not typically have large volumes on hand and could be overwhelmed if demand spikes suddenly.
• Despite vigorous Q2 sales by the state’s licensees, Arizona’s Spot Index trended downward in that period as dispensary operations were able to meet newly elevated demand. Arizona does not impose any production caps on its medical cannabis licensees, allowing them to grow and manufacture whatever is necessary to satisfy market conditions. Additionally, there is no state-mandated quality assurance screening of product in Arizona, removing potential hurdles that can disqualify inventory from reaching market, or recall it once it gets there. Consequently, no product shortages have been reported in Arizona and it appears that operators in the state in the first half of 2017 were more than up to the task of meeting growing demand.
• Despite Washington state exercising more control over their state’s production capacity than Colorado, the Evergreen State was in 2016 the country’s figurative bargain basement in regard to wholesale cannabis flower. While pricing in Washington remains relatively low, it has been outdone in that regard this year by Colorado. Colorado’s average Spot rates for Q1 and Q2 of this year are down 5.5% and 10%, respectively, compared to those of Washington State.
Source: Cannabis Benchmarks
The lowest average wholesale marijuana price ever recorded by Cannabis Benchmarks came this year in Colorado, according to the market-research firm’s 2017 mid-year report.
Cannabis Benchmarks has been tracking sales of the new commodity across the U.S., much like other market-research firms do for corn, wheat or soybean, and publishing a weekly wholesale price index, in addition to two comprehensive reports annually since April 2015.
The company does this by compiling data on wholesale prices, the size of transactions and volume-weighted averages, further breaking the numbers down by the type of grow — outdoor, greenhouse or indoor — and offering state-by-state analyses.
“To my knowledge, we are the only company that is wholly focused on the wholesale side of the market in this manner,” said Adam Koh, Cannabis Benchmark’s editorial director.
“We don’t publish anything we’re not prepared to stand behind,” he added, later explaining the company is currently working on regular market reports for other marijuana products, like extracts and edibles, but isn’t quite ready yet. Currently, Cannabis Benchmarks only reports on marijuana flower.
And according to the company’s 2017 mid-year report, there’s been a downward trend in wholesale prices across the country and a much more dramatic decline in Colorado throughout the first half of 2017.
Additionally, the market is expected to stay relatively stable through the rest of 2017, remaining far below previously seen highs and signifying “a new reality” for growers, processors and retailers alike.
The 2017 mid-year report, released earlier this month, is available for $229, but the company made the 65-page document, complete with graphics, market-force analyses and predictions for what’s to come, available to the Summit Daily free of charge.
In many ways, Colorado stands as an outlier in the marijuana industry, and the first state to legalize recreational use for adults can now boast having the most mature marijuana market in the country.
In turn, Colorado’s wholesale pot prices have fallen dramatically throughout the first half of 2017 — save a small spike before 4/20 — and Cannabis Benchmarks is calling it a “gradual slide into uncharted depths.”
When it comes to wholesale prices, the lowest average weekly state-level price ever recorded by Cannabis Benchmarks — $1,181 per pound — came in the first half of 2017 in the Mile High State.
Coming into 2016, Colorado’s wholesale prices were the highest among what the company has dubbed the “Big 4” — California, Colorado, Oregon and Washington — but that has since changed.
The report attributes the falling prices in Colorado — now below that seen in any other state — largely to increased supply, fierce competition and the state’s comparatively lax regulatory framework.
As a result, prices have been trending downward for the last year and a half after absolutely crashing in July 2016.
“In the 12 months from July 1, 2016, through June 30 of this year, Colorado’s pot price has plunged by just over 40 percent,” according to the report, sliding from $1,994 per pound to the aforementioned all-time low of $1,181.
Additionally, Colorado has experienced the most dramatic year-over-year decline and the most significant drop in volume-weighted average for any state with a legal cannabis market.
This might come as good news to retailers and consumers, but indoor growers have been hit especially hard and “have seen their product’s value tank severely,” dropping 37 percent in this year’s six-month average compared to the same span a year ago. Meanwhile, pricing for greenhouse flower has fared a little bit better, but remains down, as well.
Outdoor grows in Colorado are largely omitted from the report, as much of their production is focused on “trim,” which often sells for around $400 a pound, rather than flower, according to Cannabis Benchmarks.
“Year-over-year comparisons between (the first and second quarters) of 2016 and the same periods this year drive home just how much Colorado’s wholesale cannabis prices have declined — and continue to do so — as a result of drastic increases in production capacity allowed by the state’s liberal approach to licensing and production,” the report states.
US market report
In 2016, price patterns and trends in the national supply were upended, according to the company. Now, the market is seeing historically low wholesale prices through the first half of 2017 even though, at the same time, the wholesale market “has demonstrated remarkable stability on several fronts.”
As detailed by Cannabis Benchmarks’ mid-year report, the 2016 November election may have “ushered in the Trump regime” and “anti-cannabis zealot Jeff Sessions” for U.S attorney general, but the election also saw voters in four states approve recreational pot, adding California, Nevada, Massachusetts and Maine to the small list of states that already allow adult-recreational use, namely Colorado, Oregon and Washington.
While uncertainties have plagued the market since legalization took hold — first in Colorado in January 2014 and seven months later in Washington — the report shows a maturing market across the country with retailers learning from pervious years and considerably more stability than what the industry saw in the first half of 2016.
Overall, the falling prices may not be an encouraging sign for growers, whose profit margins can best be described as “thin,” but Koh notes that while his company doesn’t track retail prices, he’s seen some of those savings ultimately being passed on to consumers.
States that allow medical marijuana sales have considerably higher wholesale prices than states permitting recreational use.
Also, it appears retailers and wholesalers are keeping their transactions small, with the average deal in Oregon being for 2.6 pounds at the low end and 17 pounds in Washington at the high end.
The report notes that because there’s a patchwork of mixed enforcement across the U.S. and because marijuana remains illegal at the federal level, few wholesalers, especially those in newer markets, want to make large-scale transactions. Also, with the cash nature of the business, where retailers often pay for the pot they sell in cash, retailers aren’t getting the kind of discounts they might see if they bought in bulk.
In Colorado, for example, the average deal is for 5.8 pounds, slightly below the national average. According to Cannabis Benchmarks, retailers can save about 12 percent buying 5 pounds at a time, almost 18 percent if they buy 10 pounds and up to 40 percent for deals of 200 pounds.
However, less than 2 percent of all deals across the U.S. were for more than 75 pounds, with 46 percent of transactions being in the 1-5 pound range.
Forecasting the future
The wholesale price of marijuana in the U.S. is expected to bottom out in November but before it reaches the lows seen in 2016. A flood of seasonal marijuana from outdoor grows is expected to push prices down akin to what happened in 2015 and 2016 with the fall harvest entering the market.
One of the biggest influences will be California’s transition into recreational sales. According to the report, the event “will be incredibly turbulent, with various contradictory possibilities for wholesale pricing that we expect to play out simultaneously” and that uncertainty will “weigh heavily” on the national price index.
At the same time, this month marks one full year for recreational sales in Oregon, which has been plagued by “unpredictable growing pains” throughout its first year of recreational sales.
Also, federal intervention “grows less likely with each passing day,” despite what Sessions or the Trump administration might say in public because “… the AG himself has acknowledged that the U.S. Department of Justice lacks the resources to undertake broad enforcement action of the federal Controlled Substances Act in regard to state-licensed commercial cannabis activity.”
Other states, like Washington, have seen their governors and state attorneys general issue statements saying they would defend their statewide cannabis laws if Sessions were to move on legalized marijuana markets.
Koh also said that as these markets continue to advance, another big step will come in the form of hedging and derivatives, allowing companies to better manage the wholesale price risk.
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