Map by Steve Hyde
by Dominic Corva, Executive Director
In the process of developing a forecasting methodology, I’ve noticed that “canopy” — maximum or effective — seems to be a very blunt tool for calculating harvest potential. However, it can give us comparative ratios that are much more credible than nominal numbers. Today’s post uses canopy to highlight a very significant factor for thinking about I 502 production in the coming year: the dormancy of most outdoor grows.
The 1/13/2015 WSLCB updateÂ counts 339 approved producer licensees. 78 are Tier 1, 153 are Tier 2, and 108 are Tier 3 producers. We applied our sample ratios provided by the WSLCB a few months ago to project how many of those are indoor, outdoor, and both.
|Tier 1: Â Â Â||Est. Licensees||Max Canopy||Effective Canopy||% of canopy|
Simple math tells us that approximately 44.75% of currently approved production is classified as strictly outdoor, and therefore will not be harvesting for the next nine months. This number is the absolute low end of the percentage of approved producers that won’t be delivering product to market till Fall 2015: some unknown percentage of the 36.7% categorized as “both” indoor and outdoor are primarily outdoor.
If half that number are primarily outdoor — about 18% — then we would estimate that 63% of all currently approved I 502 canopy will not be yielding product for market until Fall 2015.
Of course, we don’t have good data on whether half that number is a good rule of thumb. I suspect it is too low. As we move towards a quarterly forecast, the takeaway point is that a LOT higher percentage of max canopy will be harvested in the fourth quarter, while about a third of max canopy could be harvested in the first three quarters. The third quarter will include Outdoor Light Dep crops, of course, and so we predict a steep production drop in the first quarter of 2015 followed by steady increase fortified by more producers coming on line.
That is really the difficult trend to anticipate. We don’t know how much of the current applicant pool is viable, on the one hand, and how many of those businesses will be sold to investors who can make them viable, on the other. As of now, the WSLCB seems content to let the market figure out how to distribute the limited number of licenses applied for in its first and only window.
An alternative would be to open up the process to merit-based applications, rather than let the production landscape go to the highest bidder. It is also possible the WSLCB will restore the 30% of max canopy it took away a year ago. We are at about 3.5 million out of 8.5 million square feet of max canopy the WSLCB has most recently estimated as the production ceiling.
In that case, though, investment groups may snatch up enough of the currently unviable applications to surge way past WSLCB intentions to cap production.
Astute readers will note that given the existing approved canopy numbers, Fall 2015 is likely to blow production up so much that many licensees will go out of business, on the one hand, and that I 502 retail will be extremely competitive with current medical access points. When I 502 producers start going out of business because wholesale prices can’t meet cost of production, indoor production will decline precipitously.
That goes for indoor gray and black market indoor producers, too — but does not apply to imported “indoor” from California, which is mostly outdoor. Â That price floor is probably about $1000/lb wholesale — and the legal system once up and running can beat it, if anti-competitive measures such as the tax structure are fixed.
The working hypothesis, then, is that those concerned with commercial medical production could easily wait it out — it won’t be long before market forces displace most of them. This hypothesis assumes that the 2015 legislature will (a) switch from excise to sales tax and only at point of retail; (b) resolve the local jurisdiction rebellion against I 502 participation; and (c) open up a LOT more retail stores.