CANADA CANNABIS SPOT INDEX — November 15, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published November 15, 2019

*The provincial excise taxes vary. Cannabis Benchmarks estimates the population weighted average excise tax for Canada.

**CCSI is inclusive of the estimated Federal & Provincial cannabis excise taxes..

The CCSI was assessed at C$6.47 per gram this week, down 4.3% from last week’s C$6.76 per gram. This week’s price equates to US$2,219 per pound at the current exchange rate.

 

This week four major licensed producers (LPs) – Tilray, Aurora Cannabis, Canopy Growth, and Cronos – reported quarterly earnings that sent their stock prices diving while giving the market more insight into their operations, financials, and future plans. In a nutshell, the fundamentals are catching up to the inflated stock prices.

 

The consumption of cannabis is not keeping pace with the accelerated growth in kilograms being harvested. The main culprit that the management of all the companies reported was the substantial size of the illicit market due to the lack of a sufficient network of legal retail operations. Ontario was the market that most of these LPs were counting on due to the size of its population, but with only 24 operating stores sales have been disappointing. Canopy management reported that Ontario will be announcing revised plans in the very near future to grow the number of stores in 2020. Canopy’s CEO said that Ontario would likely need 40 stores per month starting in 2020 to help rebalance the market by late summer of 2020. Aurora also acknowledged the oversupply amd announced their future Aurora Sun facility in Alberta would now only be constructed to 238,000 square feet of production space, compared to an original target of 1.6 million square feet, to rationalize production and slash capital expenditures to conserve cash.

 

A major theme of the quarterly reports was the need to expand the network of retail sales and cut the wholesale cost of cannabis in order to expand the legal market, which currently represents less than 20% of the total projected market. The four LPs continue to show an increase in total cannabis produced each quarter as new facilities come online and efficiencies in production are gained. Both Aurora and Canopy reported producing over 40,000 kg over the three-month period. Each company currently produces enough each month to fulfill all of Canada’s current legal recreational cannabis demand – a staggering fact when Health Canada has licensed over 120 producers nationwide.

Source: Cannabis Benchmarks, Company MD&A reports

With production hitting new records, total cannabis sales from LPs have not kept pace. Both Aurora and Canopy sold approximately 30% of their harvests, meaning that the rest went into inventory. As inventory levels build and age, the inventory degrades and leads to LPs writing off bad inventory. Canopy Growth reported a C$15.9 million inventory write-down this past quarter.

Source: Cannabis Benchmarks, Company MD&A reports

In order to compete with the lower priced illicit market, the large LPs have begun cutting their wholesale prices. This quarter we saw average selling prices from all the LPs continuing to decrease, with Cronos and Tilray showing the largest quarter-on-quarter drop. All the LPs referenced a changing product mix this quarter, which simply translates to introducing new budget brands selling at lower price points.

Source: Cannabis Benchmarks, Company MD&A reports

One of the bright spots in the cannabis sector has been the drop in production costs. For the current quarter, we see that three of the LPs reported decreasing costs. Aurora reported that it had cut the cash cost per gram to just above C$1. The lower wholesale prices will be partially mitigated by these cost efficiencies, but margins will still be under pressure. 

Source: Cannabis Benchmarks, Company MD&A reports

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15 November 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

CANADA CANNABIS SPOT INDEX — November 8, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published November 8, 2019

*The provincial excise taxes vary. Cannabis Benchmarks estimates the population weighted average excise tax for Canada.

**CCSI is inclusive of the estimated Federal & Provincial cannabis excise taxes..

The CCSI was assessed at C$6.76 per gram this week, up 0.4% from last week’s C$6.74 per gram. This week’s price equates to US$2,329 per pound at the current exchange rate.

 

This week we review Canadian cannabis usage trends by province and age group. Statistics Canada conducts a survey on cannabis usage each quarter. The latest data provides details on Q3 2019 usage, which adds to the same data they have been tracking since Q1 2018. The exercise is a self-reported survey with no consideration of whether the cannabis consumed originated from the legal or the illicit market.

The current report shows that, overall, cannabis use continues to grow amongst Canadians. However, as the chart on the following page illustrates, consumption has not expanded at a uniform rate during the survey period, but has varied from quarter-to-quarter. The growth can be attributed to increased accessibility and the growing normalization of cannabis as a recreational drug. Based on the current survey, Statistics Canada estimates 5.2 million, or 17.1%, of citizens over the age of 15 use cannabis. The survey shows that 650,000 more people reported using cannabis in Q3 2019 than in Q3 2018, before recreational cannabis was legalized.  

 

Although the survey does not capture the source from which cannabis is purchased or the frequency of usage, it still provides important information about trends in consumption. The data shows that cannabis usage is lowest in Quebec, with only 11.5% of the province’s population partaking. Meanwhile, 26% of the population in the maritime provinces acknowledged using cannabis. 

 

Source: Cannabis Benchmarks, Statistics Canada

 

During the period from April 1 to September 30, approximately 580,000 people reported being first time cannabis consumers. The data also showed that senior citizens made up a disproportionately large segment of first-time cannabis users. 27% of new consumers identified by the survey in Q2 and Q3 are 65 years of age or older, while individuals aged 25 to 44 made up only 10% of new consumers during this period. Senior citizens are more likely to obtain cannabis from legal sources, adding to demand in the licensed system. However, most brands have to this point hesitated to market to this age group even as Canada’s recreational market grows. This is due to evidence that seniors consume less cannabis than other age groups and generally appear to be using products for therapeutic benefits, rather than recreation.

Source: Cannabis Benchmarks, Health Canada

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Cannabis Benchmarks®, a division of New Leaf Data Services, LLC

8 November 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved