Farmers rejoice: Harvest season flips to seller’s marketDavid DownsOctober 15, 2019
Usually, at this time of year, millions of pounds of outdoor-grown cannabis flood the market. When extra supply meets the standard demand, prices drop. Not this year. A range of factors including legalization, supplies, increased demand, and weather have combined to limit the annual glut of outdoor.
You’re not going to get those $40 or $50 ounces like you could in some places in Oregon and Washington in 2018.Adam Koh, editorial director, Cannabis Benchmarks
“This year is different,” said Adam Koh, editorial director at Cannabis Benchmarks, a Denver-based cannabis data company. “This is the first time in a couple years demand seems to be driving wholesale prices more than supply.”
“Southern Humboldt was a sorrow-filled place for the last two years. People were walking around just decimated,” said Kevin Jodrey, industry pro and grower in Humboldt County, California. “Now it’s a seller’s market. We’re seeing some sense of normalcy for the cultivator.”
The bottom line for consumers is it’s not going to be the bonanza it was during harvest in 2018—it’s going to be more of the same from this summer. “You’re not going to get those $40 or $50 ounces like you could in some places in Oregon and Washington in 2018,” said Koh.
The normalization of an agricultural commodity
Cannabis’ newfound cycle of price volatility makes it part of the broader ag economy. The history of US agriculture has been an endless series of crop surpluses, price crashes, bankruptcies, and price stabilization, Koh notes.
Over the last 25 years, the price of cannabis has fallen from prohibition’s peaks in the ‘90s to today’s rates. But like a skier going from the top of a mountain to the bottom, cannabis prices have encountered short rises along the way. We appear to be in one of those rises. The graph below averages many individual (spot) prices over the last five years.
“You have a high-value crop—people are going to rush into the market to get in on the action. When that happens, supplies increase, prices go down, and people go out of business; supply decreases and prices go back up,” says Koh. “It seems unexpected and unpredictable but the volatility itself is predictable. Nothing stays the same in this industry. It’s the nature of the beast.”
Cannabis Benchmarks gets weekly harvest price data from a network of licensed businesses and industry groups. Around harvest time, analysts watch thousands of transactions per week, accounting for several thousand pounds of cannabis. They have data on 17 medical and adult-use markets. Adult-use states California, Colorado, Washington, Oregon, and Nevada are the big five driving national pricing trends, says Koh.
National wholesale cannabis prices are expected to dip slightly to $1,250 per pound through Christmas, and stay flat at $1,300/lb. through the first quarter of 2020, according to Cannabis Benchmarks.
So get out there and smell the fresh harvest flowers this season. They promise to be high-quality at a sustainable price, for now.
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Here’s what’s happening in the key states driving prices in the United States of America.
Why a price rise in California?
Turbulence has defined California’s supply chain since Proposition 64 passed in 2016 and adult-use sales began Jan. 1, 2018.
Today, California shoppers can find early-season outdoor for about $25 per eighth-ounce in many shops, with high-end indoor topping out as high as $80 in San Francisco, according to visits to California stores.
On the supply end, the pace and cost of local cultivation licensing has slowed legal planting—it can take two years and $2 million to get a farm permit. Testing standards also bit down hard mid-2018, and again on Jan. 1, 2019. In terms of pesticides, California cannabis is now cleaner than much of its food.
On the demand side, just 450 legal stores and couriers serve a state of almost 40 million residents, plus tourists. The entrenched illicit market is maybe four times bigger, according to estimates from trade group UCBA.
The weather is hot, dry, and perfect in the top three counties for legal cultivation licenses, according to the California Department of Food and Agriculture—Santa Barbara County, Humboldt, and Mendocino—allowing the outdoor harvest to get even heavier and more potent, without the risk of mold.
Jodrey says: “Stunning weather is enabling us to finish up. It’s nice, gorgeous flower this year.”
For legal growers, these factors translate into price gains this harvest. Legal demand at stores appears greater than supply at the moment. Farmers are stoked.
Supply-limiting factors: lost power, tracking
One factor muting harvest supplies: blackouts affecting more than 2 million across northern California, Oct. 9-14. Some hash manufacturers’ freezers stopped working, spoiling luxury extracts.
The state also began electronically tracking more legal cannabis this fall, which has squelched the supply of unlicensed cannabis sneaking into the legal system.
Southern Humboldt county farmer Cassidy Rogers at GreenLight Inc. said he’s sold out of inventory at the moment and expects to sell several hundred pounds of prime outdoor GMO Cookies and Diamond OG for well north of $1,000 per pound, a huge increase this year.
Brokers are asking farmers to sign contracts for their entire harvest up front, but farmers are resisting, figuring they can get even better deals, says Rogers.
Enforcement crimps illegal supplies
On the illegal side of cultivation, California experienced a bona fide supply drought this summer. This drought set the stage for an increase in black market harvest prices this fall, making the legal market more attractive.
The lack of supply came from two factors: Price drops in 2018 wiped out many farmers; plus ramped-up civil enforcement in some counties discouraged operations.
“We’ve had such a ridiculous change in production due to the satellite coverage. It’s dropped dramatically,” said Jodrey. “It absolutely disrupted the nation’s [illicit] supply.”
Jodrey also gauges the illicit market by the amount of seasonal farm hands in town to trim the crop. “There are no trimmigrants in town. Maybe two or three. We used to have villages of them and you do not see any this year,” says Jodrey.
“You see this look of horror on the buyer’s faces that just warms my heart,” said Jodrey. “This is the first year in years that the belt has changed hands. Now [the brokers] aren’t swinging the belt, it’s swinging against them.”
Mid-2020 oversupply predicted
California cannabis crops may be seeing their last price rise, though. Legal industrial farms are coming online by the hundreds of acres, and they’re perfecting growing at scale. Production by mid-2020 promises to send prices down, potentially for good.
“We should have stabilization for a little while until we get the unlimited-size farms, that’s the next price disruptor. That will take over the low-cost market,” said Jodrey.
More legal stores needed
More stores will be needed to sell through mid-2020’s crops. For example, San Diego and Denver are the same size, yet San Diego has about 20 licensed stores, while Denver has over 200.
“Unless the major metropolitan areas in California loosen up a bit, and unless more local governments allows retail stores, then yeah, California is a state that can produce a lot of cannabis, growers know what they are doing, and unfortunately there’s only a limited amount of shelf space and buyers that can take it all in,” says Koh.
Why a price rise in Oregon?
Voters have drained the risk premium—as risk falls, so does the premium—from cannabis, and prices have crashed so hard, they appear to be bouncing off the price floor for producing cannabis. That floor might be $100 per pound wholesale in Oregon, said Koh.
We’re seeing demand continue to boom in all of these adult-use markets at the same time the cultivation capacity has sort of leveled off.Adam Koh, editorial director, Cannabis Benchmarks
“We’re seeing demand continue to boom in all of these adult-use markets at the same time the cultivation capacity has sort of leveled off,” said Koh.
Oregon is one of three states that’s seeing what might be called the dead cat bounce effect. There, a free-market approach to legalization allowed more than 1,000 farm licenses when the state legalized. Operators competed ferociously. Going into 2019, Oregon sat on an estimated five-year surplus of cannabis and the average price of a legal wholesale pound hit $300, with occasional $250 and $200 deals, said Koh. Eighth-ounces hit $6 retail in winter. The price collapse knocked out all but the saviest, or richest players, thus lessening the supply. “People weren’t growing at full capacity and some switched to hemp,” says Koh.
Also tamping down on THC supplies: The industry is storing more inventory as extracts, which can keep for years. And Oregon’s outdoor cultivation center in the eastern part of the state got creamed by rains in 2019, which led to mold and massive crop spoilage.
Low prices and high quality have increased demand, Koh said. He said flower sales are up 40% year-over-year this year versus 2018. “We’re seeing demand continue to boom in all of these adult-use markets at the same time the cultivation capacity has sort of leveled off,” said Koh.
Oregon’s newfound homeostasis should hold and improve through 2020, especially if Oregon growers can start exporting crops.
Why a price rise in Washington?
A limited supply of cultivation licenses, plus fewer outdoor farms have prevented major gluts in Washington. Prices are mostly stable in stores. As for any bumper crop of outdoor—farmers in eastern Washington also got creamed by wet weather this harvest season, just like their peers in Oregon.
“Prices have been creeping up since spring, though lately they leveled of a bit,” said Koh.
Another silver lining for flower growers: extra business from consumers pausing on vaping amid the VAPI scare of 2019. Vape sales were down 15% industry-wide on the news. “I fully went back to flower,” said Jodrey.
But one factor complicates the pricing picture: The state has failed to maintain its electronic reporting system since late 2017. Repeated upgrade failures has the state flying blind in terms of both sales and testing data.
Why a price rise in Colorado?
Colorado’s dead cat bounce in price comes after mega-farms in southern Colorado glutted the market, and in some cases, folded or were bought. Consolidation in the mature industry is also limiting over-production. Big companies can afford to swallow up and leave indoor farms fallow to prevent oversupply. Colorado’s mature market is having a great year on the demand side.
No relief in East Coast and Midwest
In all the legal markets back East, the outdoor harvest does not amount to much. There’s little outdoor cannabis grown in all the East Coast medical marijuana systems—they’re much more strict. Maryland’s first and only outdoor harvest just happened this year. Massachusetts allows outdoor, but the conditions are not good.
Michigan’s upcoming transition to adult-use is crimping supply, and newly legal Illinois promises to have high prices and supply shortages come legalization day, Jan. 1, 2020. Farmers there will be rushing to have any licensed, adult-use cannabis ready by New Year.