The steadiness of the Cannabis
Benchmarks California Spot Index from June to July this year echoes the
behavior of the state’s Spot Index in the same span in 2018, although July
2019’s monthly mean is up by 8% compared to a year ago. Viewed from a wider
perspective, however, observations of wholesale prices in the Golden State
through the first seven months of 2019 have diverged significantly from those
in the same period in 2018.

In 2018, California’s Spot
slid downward for the most part from the outset of the year through the end of
July. During that span, it fell by 23.8% per pound. This year, the state’s
composite price has been more stable, but has fluctuated up and down from the
beginning of the year to the current moment. Overall, the Spot price reported
at the close of July is up by 4.6% relative to the rate per pound documented at
the beginning of 2019.

California’s composite
price would continue to slide through the end of summer and into the fall of
2018, albeit gradually. Last year, the state’s Spot average in August was off
by 1.4% from the month prior. September 2018 would see California’s overall
volume-weighted average slip slightly before the fall harvest pulled the
state’s monthly mean for October down by 4.1%.

Wholesale market
conditions in California were very different at this time last year. In August
2018, about 3,000 temporary cultivation licenses had been issued by the state
Department of Food and Agriculture (CDFA). We recently reported that just under
2,550 cultivation licenses of all types remained active in California’s market
as of late July.

While those numbers are
not dramatically different, it must be noted that the state’s Cannabis
Track-and-Trace (CCTT) system was not in use until this year, which made the
regulated market porous to inflows and outflows of unlicensed production. As of
late July 2019, almost 94% of cultivation licenses issued were annual or
provisional permits, which require the license holder to use CCTT.
Additionally, there were fewer retailers up and running in California’s
licensed market in Q3 last year relative to today. By the end of 2018, there
were about 540 legal storefronts in the state, a number that has swelled to
over 625 as of earlier this year.

Overall, given the fact
that fewer licensed growers subject to greater oversight are supplying a larger
number of more established retailers, market dynamics appear to indicate that
the sliding wholesale prices observed during August and September of 2018 may
not be in the cards this year. How the fall harvest will impact wholesale
pricing in California in the first year that CCTT is in place remains something
of an open question.