National wholesale flower prices generally have trended downward since the global COVID-19 crisis gripped the U.S. From March 13 to May 1, the U.S. Spot Index declined by 5%, from $1,404 to $1,334 per pound. The negative movement in national wholesale flower prices comes amidst reports of strong sales in late March, as consumers and patients stocked up ahead of stay-at-home orders and the possible shutdown of cannabis retailers, as well as the industry holiday 4/20, normally one of the market's strongest sales days that was dampened this year by coronavirus-related restrictions.
To make sense of how the pandemic is affecting the legal cannabis industry, familiarity with prior supply and demand trends is necessary. For example, several media outlets/analysts trumpeted that strong March sales figures released by officials in Oregon and Arizona were due to the fallout from the novel coronavirus. However, as Cannabis Benchmarks detailed in its U.S. Cannabis Spot Index report for April 24, March sales in both markets set new records each year from 2017 to 2020. Also, sales growth rates in both states from February to March in 2017 to 2019 were comparable to those documented under pandemic conditions this year. Sales increased by around 20% from February to March in Oregon each year from 2017 to 2019; in 2020 they grew by 24%. In Arizona in 2017 through 2019, sales volume increased by 12% to 16% from February to March each year; in 2020 the growth rate was 15%. Overall, seasonal sales trends and existing market growth were likely the main drivers behind strong March sales in Oregon and Arizona, though pandemic-related bulk purchasing provided a boost.
Two markets that undeniably have been impacted by the pandemic are Nevada and Massachusetts. Nevada cannabis retailers were forced to shift to delivery-only sales in late March, while the shutdown of Las Vegas tourism robbed the state of a large chunk of its usual demand. After trending upward through the first two months of 2020, Nevada’s state Spot Index has been on the decline. As of May 1, it had fallen to $1,580 per pound, off almost 15% from its recent peak in late February ($1,849/lb.)
Adult-use cannabis retailers in Massachusetts have been subjected to the strictest COVID-19 response in the country, having been ordered to cease sales completely in late March. From March 27, the week adult-use sales were shut down, to May 1, Massachusetts’ Spot Index fell by almost 6%, or by nearly $200, to $3,206 per pound, as demand from consumers disappeared.
Looking ahead, trends in supply, demand, and wholesale prices will almost certainly vary state by state. In hard-hit markets such as Nevada and Massachusetts, lower wholesale flower prices may persist even after sales pick up. This is because cultivation is continuing, even as demand has been severely diminished or eliminated, which will allow surplus inventory to build. This may also be the case if sales decrease in newer markets such as Illinois and Michigan, where growers were having trouble keeping up with demand prior to the pandemic.
Finally, the return to normalcy looks increasingly as if it could be an uneven process. For example, some states began to lift some restrictions on residents and businesses in late April and early May, but some experts are warning of a possible resurgence of the virus that could lead to restrictions being reinstated. It is possible that cannabis retailers could see peaks and valleys in sales, rather than a gradual, predictable recovery. While uncertainty typically leads to higher commodity prices in traditional industries, COVID-19 could suppress wholesale cannabis prices if retailers are hesitant to purchase large volumes of inventory and sales slow generally as part of an overall economic downturn.
Adam Koh is editorial director for Cannabis Benchmarks and Hemp Benchmarks.
Progress can be difficult to measure, especially when many businesses and life as we know it changed dramatically almost overnight due to the novel coronavirus pandemic. But remembering where we’ve been is important to remind us that things will not stay this way forever, and progress, while sometimes seemingly small, is still progress. In that vein, this issue of Cannabis Business Times has a common thread of reflection.
Starting here, you’ll find CBT’s fifth “State of the Cannabis Cultivation Industry Report.” With five years of data, patterns we’ve seen develop are becoming consistent trends you can use to benchmark your business. Overall, the numbers suggest that the industry continues to draw new interest, as 43% of research participants have been in business less than two years—a trend we’ve seen since 2016, when the majority (60%) had been in business less than three years. Findings also show that cultivators are reducing production costs, which is crucial as competition increases and wholesale prices decline.
Speaking of findings, North Carolina State University researchers have, for the past year and half, shared research results on cannabis health in a series of articles on nutrient and cultivation management and provide actionable information you can use in your own cultivation operations. In this issue, they explore how to achieve ideal boron levels and how those levels can significantly impact your yields.
When Cannabis Business Times, which is celebrating its fifth anniversary in print this year, and the “State of the Cannabis Cultivation Industry Report” launched, the U.S. legalization landscape looked very different. Only four states operated adult-use programs, and they were all in the western half of the country. Today, close to a dozen have fully legalized cannabis consumption, including Illinois and Michigan in the Midwest and Massachusetts, Maine and Vermont in the East.
However, progress has many nuances, and state legalization of a federally illicit plant is never a clear cut nor consistent process. In the April 2018 cover story, CBT Digital Editor Eric Sandy examined the California market, the pioneer of medical cannabis, at the dawn of adult-use legalization. In this issue, he revisits the story, speaking to stakeholders and growers in The Golden State, to see what the regulated market looks like two years later and how exorbitant taxes and the uneven balance between the number of growers and licensed retailers, among other challenges, are straining legal cultivators and prices and fueling the illicit market.
Also in this issue, Senior Editor Patrick Williams shares the first in a special series highlighting some of the historic moments of legalization and regulation and how they’ve led to where the industry is today.
As more states come online, the hope is that each new market can learn from what others have done right, as well as wrong, as the industry continues to push for federal legalization.
Of course, challenges persist. But whether through legislative advancements, benchmarking data tracking the industry’s growth, or new research on cannabis cultivation (which until recently was not permitted in any university setting), progress is all around us.
Tangible examples of progress can even be found in your grow rooms, greenhouses and fields, where we are reminded that tiny seeds and cuttings can eventually grow into beautiful, powerful plants.
“You can just point to the fact that we have been deemed essential, why are we not legal?”
^ Matt Hawkins, managing partner of Entourage Capital, a private equity firm with $200 million invested in Green Thumb Industries and other cannabis producers, is hopeful that the COVID-19 pandemic will accelerate the cannabis legalization movement.
“Without providing these businesses the relief needed to carry out the recommended public health and worker-focused measures, we are putting these hard-working people—and ourselves—at risk.”
^ In a press release, Rep. Earl Blumenauer (D-OR), founder and co-chair of the Congressional Cannabis Caucus, advocated for cannabis businesses to have access to Small Business Administration (SBA) loan programs. He, along with Rep. Ed Perlmutter (D-CO), introduced legislation April 23 that would make cannabis businesses eligible for SBA COVID-19 relief programs. Source: U.S. Congressman Blumenauer’s office
“While there has been some progress in scaling back the war on people who use marijuana, it is still wreaking havoc in much of the U.S.”
^ In an April 20 report titled “A Tale of Two Countries: Racially Targeted Arrests in the Era of Marijuana Reform,” the American Civil Liberties Union (ACLU) found that racial disparity in cannabis arrests has increased since 2015, with black people more likely to be arrested for cannabis possession, even in states that have legalized cannabis. Source: ACLU