Holy Shortage! (for now)

In the Washington Wholesale Cannabis market there’s been a shortage. Let’s look at the numbers and try to found out why.

Demand > Supply = Raising Prices

A picture (or chart) speaks a thousand words;

Notice a fairly stable market for outdoor flower until April of this year.

Indoor flower prices have been less consistent month to month, but overall trends point to a 30-50% increase this past year.

Down stream prices have especially seen the effects, currently crude oil is nearly double of what it was last June.

Everything points to a shortage on the Washington Marketplace which isn’t bad news for everybody. Farmers have been hit with consistently falling prices, and this bump is probably more than welcome.

Of course buyers aren’t as happy. The days of making offers at 75% of asking price and expecting a deal to close is all but gone. Many processors have build up entire brands around sourcing wholesale flower and selling to retail at a healthy margin. Now with wholesale prices up, margins are thin, and brands are suffering.

Possible Causes

1. Less Licenses = Less Weed

Between smaller margins, county moratoriums, and typical business troubles there’s been plenty of farms going under in the last year. Since 2016 the number of active licenses has for the most part climbed, but if you compare the last two ‘Marijuana Applicants’ lists published by the LCB there’s about 25 less licenses active since April..

25 less businesses might not sound like a lot, but it’s only looking at a 3 month period. If the trend were to continue we’d loose about 100 total active licenses a year. Less farms = less weed.

2. An Increase in Pesticide Testing

In Washington State pesticide testing for cannabis products has not been required for the sale to end users. Instead, consumers (and purchasing brands) had to trust what was printed on the label.

Since Fall of 2018 there’s been a ‘self regulation’ push that inspired more than one retail store to test the products on their shelves for both potency and pesticides. At first, the results were bad. Many products failed the independent testing, and brands were put on blast for having non-compliant products in stores.

The increase in testing resulted in major changes across the marketplace! Before Winter 2018 it was common for buyers make spot purchases on untested material. Since the increase in testing, almost everybody requires a pesticide test to protect their brands. If more material is getting tested, more could be failing and leaving the marketplace.

3. Big Players Are Making Big Moves

By now, if your growing cannabis in Washington State you’ve probably gotten a call from a couple big players in the past 6 months. It’s a classic move used in most major commodity based industries; buy up all the product and wait for prices to go up.

We’ve definitely heard rumblings of big moves in the last couple months, and it’s not hard to imagine a hike in prices because somebody went and bought all the weed!

4. Unused Canopy Space

We already discussed the decline in active licenses, but according to the WSLCB there was also a large amount of unused canopy space in 2018. Here’s a quote from the WSLCB site:

During the first year the Canopy Team attempted to survey 1,155 licensees. The team completed 792 surveys, encountered 254 licensees that reported no canopy, and was unable to survey 109 licensees. The 792 completed surveys consisted of 778 staff surveys and 14 drone surveys. The data indicates that, on average, both indoor and outdoor canopy space is underutilized.

https://lcb.wa.gov/marj/canopy_report

If that sounds bad, brace yourself. Once you open the state’s report the actual data is surprisingly bad:

Tier 3 producers …. were utilizing on average 38 percent of their licensed space. Tier 2 producers … appeared to be using 42 percent of their licensed canopy space. This trend follows to tier 1 producers who … on average occupied 41 percent of their licensed canopy space.

https://lcb.wa.gov/sites/default/files/publications/Marijuana/YearOneCanopy.pdf

This was only the first report from the LCB. It will be interesting to see if these numbers change over the next few years. The data is all from 2018 surveys, so it easily could play a role in the current shortage.

5. Kush Marketplace Has Sold A Sh*t Ton of Pot!

Maybe this is us patting ourselves in the back, but we’ve sold so much weed this last year that it could have caused a shortage..

According to the raw data we’ve sold about 25,000 pounds of cannabis since 7/1/18 in Washington state alone. That’s 12+ tons of material that wasn’t sold through Kush.com in years past. It’s hard to imagine it’s the sole reason for a shortage in the market, but it deserves a mention.

Light Dep Is Here

Photo credit: Tyler Lamont at Boggy Boon near Wenatchee, WA.

Good news is coming. Light dep harvests are coming down. Hopefully after pesticide scares last winter we won’t see as much hot material this harvest season. Buyers will start to see viable options again, and sellers should sell at higher prices this year than they did in 2018.

The shortage was most likely caused by a combination of factors. If the main cause was related to pesticides or harvest cycles, than waves of light dep could fix everything.

If not, things could get interesting this Croptober.