CANADA CANNABIS SPOT INDEX — December 6, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published December 6, 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$6.29 per gram this week, down 1.3% from last week’s C$6.37 per gram. This week’s price equates to US$2,151 per pound at the current exchange rate.

 

This week we look at retail cannabis sales for September. Statistics Canada reported the unadjusted September sales to be C$123M, which was C$3M or 2.4% below August sales. This recent data point is not positive for the industry as it shows plateauing overall sales, despite a growing number of storefronts in some major provinces. 

 

Cannabis Benchmarks’ estimates approximately 59 new stores opening in September, all of them in Alberta and British Columbia. However, additional retailers in those provinces did not result in significant sales expansion in September. The chart below shows monthly retail cannabis sales by province. In addition to relatively stable sales in the two aforementioned provinces, the other two largest – Ontario and Quebec – saw a small decrease and a small increase, respectively, in revenue generated by legal cannabis retailers. 

Source: Statistics Canada, Cannabis Benchmarks

One of the most notable figures from the September report was the large drop in sales from the Maritime provinces. Up until now, these four Eastern provinces have been outperforming the rest of the country in sales per cannabis user. Up until April, sales from the Maritime provinces were higher than all of Ontario and their September sales still exceed those of British Columbia. 

Source: Statistics Canada

We are not certain of the exact reason for the drop in sales, but we suspect it is not due simply to a decline in cannabis consumption. We believe the combination of dropping cost of cannabis from expanding inventory at the producer and distributor level is leading to margin compression, hence lower price points and lower revenue. Some of the major producers have already introduced new discounted brands to be more competitive with the illicit market, in the hope of building the legal system’s market share. 

 

Also, it is potentially worth noting that data from more mature adult-use cannabis markets in the U.S. frequently evince downturns in monthly sales from August to September. For example, in four of the previous five years, monthly cannabis sales in Colorado reached their annual peak in August. Of course, we do not yet have enough historical data to determine whether Canadian cannabis sales will mimic trends documented in the U.S., but it is possible that the September decrease is part of a seasonal lull similar to those observed in numerous state markets south of the border.

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

6 December 2019 Copyright © 2019 New Leaf Data Services, LLC.  All rights reserved

CANADA CANNABIS SPOT INDEX — November 29, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published November 29, 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$6.37 per gram this week, down 0.8% from last week’s C$6.43 per gram. This week’s price equates to US$2,177 per pound at the current exchange rate.

 

This week we analyse Cannabis Benchmarks’ estimate of the total grams of cannabis sold in each province, along with how much an average consumer purchases each month. Since the inception of legal recreational cannabis markets, we have seen a steady increase in the total grams sold across each province. As we have established in past reports, this comes with a growing retail presence in provinces such as British Columbia and Ontario, as well as declining prices nationwide. 

The chart below is our estimate of the number of grams sold each month for different provinces and regions of the country. This view gives a side-by-side comparison of the growth and trends in the Canadian cannabis market.

 

Source: Cannabis Benchmarks

We then divided the totals in the chart above by the number of cannabis users, as reported by Statistics Canada, to reach an estimate of average per-person monthly purchase volume.

Source: Cannabis Benchmarks

Although the overall picture in both charts look similar in many respects, there are some differences and notable takeaways.

 

  1. Alberta has seen steady sales growth in conjunction with the exponential expansion in the number of retail stores. On average, each reported cannabis consumer purchased 3.5 grams of dry cannabis each month from the licensed market in August, the most recent month for which data is available.
  2. British Columbia’s legal cannabis market has seen relatively low purchasing levels. However, the data shows a big jump in sales in August, with the rapid increase in the number of physical stores and falling prices leading to licensed sellers becoming more competitive with the illicit market.
  3. The Prairie provinces show some of the highest purchase volumes per cannabis user, but that appears to have plateaued at around 3.5 grams per month beginning this spring.
  4. Ontario significantly lags below the national average in sales volume per cannabis consumer. Changes to rules around retail licenses, storage, and distribution processes will likely lead to accelerated consumption in Ontario in the future.
  5. Total sales volume in Quebec, and its growth trajectory, is comparable to that reported for Alberta, despite the former having double the population of the latter.
  6. The Maritime provinces have shown some of the strongest and most consistent per-consumer purchase volumes. The average cannabis user in these four eastern provinces has consistently bought between 2.5 and 3.5 grams per month from the legal market since October 2018.

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

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

CANADA CANNABIS SPOT INDEX — November 22, 2019

CANADA CANNABIS SPOT INDEX (CCSI) 

Published November 22, 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$6.43 per gram this week, down 0.6% from last week’s C$6.47 per gram. This week’s price equates to US$2,198 per pound at the current exchange rate.

 

This week we analyse the sweeping changes about to occur in Ontario’s cannabis market. These changes are expected to be well received, both by consumers and the four major licensed producers (LPs) – Tilray, Aurora Cannabis, Canopy Growth, and Cronos – that reported big misses in their quarterly earnings last week. In their quarterly earnings calls last week, each company’s management team concluded that the lack of retail infrastructure in Ontario is constraining their sales. With Ontario home to 38% of the Canadian population, or 14.5 million people, increased and more convenient access is very important to the growth of this sector.

 

A number of recent announcements will fundamentally alter the trajectory of Ontario’s cannabis market. Below, we summarize the key changes and, taking those into account, introduce our new retail sales projections for Ontario through the end of 2020. 

 

  1. Next month we are expecting the introduction of cannabis 2.0 products, or cannabis-derived products such as vapes, beverages, edibles, and more. As we reported in our October 25 report, sales of these new products should expand the current cannabis user base by bringing in novelty buyers, as well as attracting buyers away from the illicit markets. Additionally, a portion of consumer spending will likely shift from dry flower to more premium priced alternative products, resulting in higher sales revenues. (Cannabis 2.0 will take place nationwide and is not limited only to Ontario.)

  2. On November 6 the Ontario Cannabis Store announced the click-and-collect system, which will allow existing private cannabis retailers to take orders online or by phone for in-store pickup. This service aims to reduce wait times for buyers and mimic the sales process of the illicit markets. Leafly, a well-known cannabis discovery site, already provides this service in Alberta. 

  3. The Ontario Cannabis Store (OCS) announced on November 19 the move to a privately-operated centralized distribution network. This will further remove the OCS from the cannabis sector by privatizing the storage and distribution centers and direct store deliveries. The goal is to have less government intervention to promote cost efficiencies and increase the legal consumer base by ultimately driving down prices closer to those observed in the black markets. 

  4. Finally, the biggest announcement was made yesterday, November 21, in regard to the potential for an open allocation process for issuing retail store licences next year. The current lottery system has been fraught and slow-moving, resulting in only 24 cannabis stores currently open across Ontario. The new process is intended to be more streamlined, with an online application and thorough background check. 

 

If all these changes transpire, we expect the number of stores to increase dramatically starting Q2 2020, eventually reaching 400 by the end of next year. As a result, we have updated our base case cannabis sales projections through the end of 2020.

Our analysis includes both a low and high case. The low case assumes the process for issuing retail store licenses stays on its current path, resulting in only 150 physical locations by the end of 2020. The high case assumes store growth to be rapid (or required), as outlined by the Canopy management team on their earnings call last week. They suggested 40 new stores each month to suck up current production levels and inventory to balance the market by late summer. In this scenario, we reach 505 operational stores by the end of 2020.

In our base case, we see Ontario sales expanding quickly and reaching C$97 million in total monthly retail sales for December 2020. This is almost triple the sales reported by Statistics Canada for August 2019.

Source: Cannabis Benchmarks

The linear relationship between number of stores and total sales does break down with the opening of new locations. As more stores are opened, consumers will have more access points and sales get distributed. Additionally, we factor in the sales growth from cannabis 2.0 by scaling in the additional spending that we anticipate will be generated by the new products. Ultimately, we forecast the boost in sales from cannabis 2.0 will account for 25% of the total spend in this market.

Source: Cannabis Benchmarks

These announced changes, if implemented effectively, efficiently, and in a timely manner, will likely put the Ontario cannabis market on the growth path envisioned originally by market participants.

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

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