wholesale Archives - Green Market Report

Debra BorchardtDecember 7, 2021
shutterstock_1274768347-scaled.jpg?fit=960%2C720&ssl=1

13min54591

Wholesale cannabis prices have fallen this year and the impact was felt by several companies and in particular – those in California. Cannabis Benchmarks data shows that California’s Spot prices have been on a freefall since June. Cannabis Benchmarks said that prices have dropped by as much as 30% this year. Plus, as outdoor harvests have ended that product is hitting dispensary shelves, which could cause prices to go even lower. 

Leafly’s Cannabis Harvest Report said that in the 11 legal adult-use US states, cannabis supports 13,042 licensed farms that annually harvest 2,278 metric tons of marijuana or more than 5 million pounds of weed. The wholesale cannabis crop brings in $6.2 billion annually, ranking it as the fifth most valuable crop in the United States. Only corn, soybeans, hay, and wheat bring in more money to American farmers. The report also stated that legal cannabis is the single most valuable agricultural crop in Alaska, Colorado, Massachusetts, Nevada, and Oregon, but remains completely uncounted and ignored by state agriculture officials. 

Alex Feldman General Manager, Insights & Marketing Services at LeafLink said, “California prices are still depressed as of early December due to a number of factors. Growing conditions were more favorable this year compared to last, new entrants came into the market anticipating a post-pandemic recovery, and there is continued downward pressure from the black market.” 

Too Much Marijuana

Although demand for freshly-harvested material could help steady price initially, as has been the case in some previous years, the rumblings in California have suggested that an early harvest price bump may not be in the cards this year due to inventory hangover from 2020 and this summer’s light-deprivation crops swamping the market.

Jonathan Rubin, Founder and CEO of Cannabis Benchmarks said that in addition to California, Oregon and Colorado were also seeing a significant drop in wholesale flower prices. “For the West Coast states, there was a significant amount of inventory that remained unsold deep into this year from a big outdoor harvest in 2020. In California, it seems that 2020 and 2021’s harvests were similarly robust. Additionally, cultivators that had spent previous years getting through the state’s stringent licensing process came online and started producing this year, including larger light deprivation operations outside of northern California, and generated a surge of supply beginning this summer, which caused prices to start to fall ahead of the autumn crop.”

In addition to California, Rubin said that in Oregon it seems that growers took record-breaking demand during the first summer of the Covid pandemic as a signal to ramp up production. “Even before the fall harvest, from roughly January through August this year, indoor and light deprivation growers were bringing in harvests that were a good bit larger than in 2020. Regarding the fall outdoor harvest this year, recent data from Oregon shows that outdoor growers have harvested about 55% more wet weight than they did in 2020, a huge increase in output,” he added. With regards to Colorado Rubin said that cultivators also ramped up production in 2020. “Data from the state MED shows that licensed growers in Colorado produced 40% more flower in 2020 than was purchased by adult-use consumers and medical patients, leaving a large inventory overhang,” said Rubin.

Low Prices Hurting Companies

Cannabis companies began to inform investors about the impact of the low prices during the last earnings season. Some were pretty upfront about the situation, while others just dropped hints. 

TPCO also known as The Parent Company (OTC: GRAMF) was one of the companies to deliver sobering news to investors. It reported that sales in the third quarter dropped by 26.7 % from the second-quarter revenue of approximately $54.2 million and blamed the decline on a decrease in bulk wholesale flower and bulk wholesale oil prices during the third quarter.  Wholesale revenue fell to $26.9 million versus $42.3 million in the second quarter and this was attributed to the decrease in whole flower pricing during the quarter. TPCO said that the charge was based on the softening of the California cannabis market. The company also insisted that the challenges it faced were not unique and that the entire California market was experiencing these issues, however, few other companies announced taking a $570 million charge during the quarter. 

Similarly, Harborside (OTC: HBORF) said it was withdrawing its previous revenue guidance for 2021. A variety of reasons were given including a decline in wholesale pricing for bulk products in the California market and the beginning of a commoditization decrease in wholesale revenues as a result of a decline in wholesale pricing for bulk products in the California market. Harborside also said that the California retail market was experiencing a softening in consumer demand. Operationally, the company said it implemented a change in its harvest procedures which delayed flower production in the third quarter of 2021 to allow for the adoption of a perpetual harvest schedule beginning in the fourth quarter. 

Glass House Brands (OTC: GLASF) CEO Kyle Kazan said during its recent earnings announcement that the California wholesale market faced considerable pricing challenges, as a result of overproduction in the third quarter. “While we expect the weakness in pricing to persist in the near term, we have proven the strength of our efficient operating model and the ability of our team to navigate a rapidly changing industry,” he said. The company reported that wholesale biomass revenue fell 18% despite a more than doubling of unit volume sales as flower wholesale prices fell by 48%, negatively impacting revenue by $4.1 million. Glass House also said it no longer expects to achieve the 2021 and 2022 revenue and profitability targets it had previously announced. The company now expects fourth-quarter revenues to be flat to down slightly compared to the third quarter in 2021 revenues of $17.2M. Kazan seemed to take the challenge in stride saying, “In Q3, our revenue (and that of everyone else of size in our market), took a hit from the significant drop in California’s wholesale flower pricing, and we think the difficult pricing environment will stick around for a while. “

Columbia Care (OTC: CCHWF) opted to just drop hints saying during its earnings announcement that there were some “wholesale pricing dynamics in some markets, such as California and Pennsylvania, and competitive market share dynamics in Florida.” After reading the other company comments, Col-Care’s soft pedal is really downplaying the situation. 

Slowing Sales

Of course, no one wants to suggest that sales could be maturing in some states. Rubin also said Cannabis Benchmarks noted that the expanded production coincided with slowing sales after the initial pandemic boom in 2020. “Beginning this spring and summer, sales began to plateau and then began to decline in late summer, continuing into the autumn and early winter. So in contrast to 2020 when demand was spiking and sales were breaking records in many legal cannabis markets, that has slowed in the second half of 2021 and recent month’s sales in the states under discussion are down year-on-year.” That statement agrees with Harborside’s assessment. 

Higher Energy Prices

Not only are these companies facing slowing sales, too much inventory, and falling prices, but they are also getting squeezed by higher energy costs, Granted if you’re an outside grower in California, you likely encounter water pressures. The recent Consumer Price Index (CPI) for all items jumped 0.9% in October and there were notable increases in the energy and energy services (utilities) sectors. Energy prices rose 4.8% in October with gasoline up 6.1%, fuel oil up 12.3%, and electricity up 1.8% on the month.

Indoor growers rely heavily on electricity to run lights and massive HVAC systems. They are known to be energy hogs. Over the past 12 months, the CPI reports that overall energy prices have risen 30%, with energy commodities, gasoline, and fuel oil, up 49.6% and 59.1%, respectively. Energy services (utilities) are up 11.2% year-on-year. 

In Closing

The question will be who can weather this storm of low prices, high energy costs, and slowing demand in legal dispensaries? LeafLink’s Feldman noted, “We’ve seen wholesale bulk flower pricing declines through October in key states including Michigan, Oregon, Colorado, and Arizona, but are seeing the trend improve as early December average prices in three of the four states are increasing, with the exception of Colorado.” So there could be light at the end of the tunnel. 

However, some cannabis industry vultures say they are already circling to look for those smaller players who are in distress and don’t have the reserves to ride this out. The larger companies can cut costs in the challenging states while relying on sales in states where wholesale prices have stayed steady. These dynamics are just part of the overall portfolio in a larger company. The California-only companies will see the crushing need for diversification. 

Kazan concluded, “To us, that’s not all bad news — the best strategy for weathering commoditization is producing the highest quality product at the lowest cost, and that’s basically a description of Glass House Brands’ strategy. In other words, we’re ready. Price compression is expected in every evolving industry and it makes strong companies stronger, though it unfortunately also removes others from the playing field. We’ve been preparing for this for a long time, and we think these market conditions will see the best-in-class companies thrive.


William SumnerDecember 12, 2018
Alaska.jpg?fit=960%2C640&ssl=1

4min32840

Earlier this week, the cannabis technology platform LeafLink released its 2018 Wholesale Cannabis Pricing Guide and the company learned that Alaska and Maryland are the two most expensive states to buy legal cannabis, followed by Nevada and California.

Examining the wholesale landscape of some of the most mature cannabis markets in the United States, the guide looks at the average wholesale price of cannabis in eight states: Alaska, Arizona, California, Colorado, Maryland, Nevada, Oregon, and Washington. The product types covered by the report include concentrates, cartridges, edibles, flower, and pre-rolls.

Although the report does not dive into the specifics of why one state is more expensive than another, the authors speculate that the Alaska and Maryland’s high prices are due to the states having a low number of cannabis cultivators. In the two states where cannabis is cheapest, Washington and Oregon, there is currently a glut of cannabis cultivators; leading to low prices and oversupply.

“As the standard wholesale marketplace for the industry’s leading brands, we are able to provide crucial market information to cannabis retailers and brands, which will help inform their plans for 2019,” said LeafLink Co-Founder and CEO Ryan G. Smith in a statement. “As more states like Massachusetts, Connecticut, Pennsylvania, and Michigan continue to establish wholesale operations, we will be able to provide a larger scope of market activity to further empower the LeafLink community, as well as the industry at large.”

Nationwide, the average price for a pound of cannabis flower is $2,124 per pound, while a gram of pre-rolls costs around $5.66 per gram. The average price for cannabis concentrates costs approximately $26.07 per gram and cartridges are priced at around $39.55 per gram. Edible cannabis products, on average, cost around $0.20 per milligram.

When taken on a state-by-state level, cannabis prices start to vary. With regards to cannabis consumer preferences, the report found that consumers prefer products in the lowest 25% price range. The exception to this was pre-rolls. On average, consumers preferred pre-roll products in the 25%-49.99% price range.

The report also examined the relationship between pricing and discounted sales. On average, approximately 16% of the products sold through LeafLink’s platform have a discounted price. Across all eight states examined, discounted products generated 3% more sales than regularly priced products.

The discount effect is magnified when combined with larger sales campaigns. During the last year, LeafLink ran two sales promotions, one in the month leading up to 4/20 (dubbed 3/20) and one in July called 7/10; which is a considered an industry-wide “holiday” for concentrates.

When combined with those larger sales campaigns, discounted products generated 37% more sales on 3/20 and 38% more sales on 7/10. This seems to suggest that cannabis retailers stand to significantly boost their sales numbers by combining sales promotions with discounted cannabis products.


Peggi CloughFebruary 28, 2018
shutterstock_613981220.jpg?fit=960%2C889&ssl=1

4min39241

The U.S. Cannabis Spot Index averaged $1,562 per pound in 2017, a 13 percent decrease from $1,789 per pound in 2016, according to Cannabis Benchmarks Annual Review & Outlook: 2017-2018 Edition.

The Index declined only 6 percent throughout 2017, opening at $1,532 and closing at $1,436, in contrast to the 20% decline seen in 2016.

Wholesale market for the cannabis flower was $5.7 billion in 2017. For reference, the wholesale wheat market was $7.8 billion. Volume grew by 22%, from 3 million pounds in 2016 to 3.7 million pounds in 2017.

Lowest prices for the year were again seen in November, with the national composite price down 11.6% in Q4 from Q3. Favorable weather conditions led to fall bumper crops, and the combination of outdoor and greenhouse flower hitting the market at the same time helped fuel this in 2017.

The lower level of spot price uncertainty led Cannabis Benchmarks to investigate the volatility of other agricultural commodities. They found that cannabis was in line with the others and that only one, wheat, increased. They believe cannabis volatility decreased in part because of fewer “regulatory and economic surprises.” This may also hold true for Colorado, Washington, and Oregon, although foreseen regulatory actions can greatly affect regional prices.

While it doesn’t have a huge impact on the market, greenhouse flower accounted for just under one-third of all volume traded in 2017, staying at the same volume as the second half of 2016. This is significant because it accounted for less than one-fourth of all volume in the first two quarters of 2016.

Warehouse flower contract prices appear to be trending downward. In 2017, 40% of individual transactions involving warehouse flower were greater than $2,000 per pound, down from 45% in 2016. When looking at flower selling for greater than $1,500 per pound, the numbers were even lower, 69% in 2017 as opposed to 80 percent in 2016.

The market also saw more agreements that were not involving product exchange, only financial exchange, such as futures, swaps, and options.

In the first half of the year, wholesale prices increased in California, but the bounteous fall crop proved to be too overwhelming to maintain the increase, and wholesale prices fell. Wildfires in the fall ravaged dozens of grow sites; however, they didn’t have an effect on supply statewide.

Colorado’s average Spot Index for 2017 was almost 30% below 2016’s Spot Index, continuing the downward trend that started in early 2016. The state has such an oversupply of cannabis that quality and other differentiating criteria have ceased to have much significance.

Wholesale prices in Oregon fell dramatically in 2017, less than 18 months after the state legalized sales to adults. A good growing season, lack of production limits and an increase in commercial growing knowledge were all factors in the decrease.

In the last weeks of 2017 and early into 2018, Washington’s wholesale prices were the lowest seen in any state, historically. This trend is being closely watched in 2018.

Cannabis Benchmarks is a division of New Leaf Data Services and provides wholesale price assessments in weekly, mid-year and annual reports. Their Annual Review & Outlook: 2017-2018 Edition offers wholesale market data, overview and analysis, and is available for purchase.


Choose Your News

Subscribe to the Green Market Report newsletter that gives you original content delivered straight to your inbox.

 Subscribe

We respect your privacy. See our privacy policy.


About Us

The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


READ MORE



Recent Tweets

@GreenMarketRpt – 2 days

5 Cannabis Stock Picks From Viridian

@GreenMarketRpt – 2 days

RT : AMAZING account of how consumer brands are using the psychedelic buzzword to market legal non-psychedelic products explo…

@GreenMarketRpt – 2 days

RT : Founder and managing principal of , Matt Hawkins, spoke with on primarily private-side investors in…

Back to Top

Choose Your News

Subscribe to the Green Market Report newsletter that gives you original content delivered straight to your inbox.

 Subscribe

We respect your privacy. See our privacy policy.