How many I 502 producers just went dormant for the next 8 months?

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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 update 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:     Est. Licensees Max Canopy Effective Canopy % of canopy
In 65 91,000 27,300 1.33%
Out 8 10,920 9,828 0.48%
Both 5 7,280 4,732 0.23%
Tier 2:
In 91 634,145 190,243 9.27%
Out 24 169,105 152,195 7.42%
Both 38 267,750 174,038 8.48%
Tier 3:
In 26 546,000 163,800 7.98%
Out 40 840,000 756,000 36.85%
Both 42 882,000 573,300 27.95%
Total 339 3,448,200 2,051,436 100.00%

 

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.  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.

Initial Monthly Revenue for I-502 Businesses by Type and Tenure

By Dr. Jim MacRae, CASP Research Associate

Now that 2014 is behind us and Washington State is entering its second year enjoying a legal cannabis market, it is time to reflect on (and give a bit back to) the brave individuals at the vanguard of this nascent industry.

The attached chart is intended to stimulate thought and discussion amongst I-502 business operators, applicants, aspirants, supporters and legislators about the early revenue realities of operating a legal cannabis business in Washington State.  It is also designed to be a useful initial benchmarking tool for legal cannabis business operators*.  For example, if you are a Retailer that has been open for 3 months and you book $160,000 in month 3, you are in the minority (in a good way) vs. your peers.

As such, the only interpretation I’ll put on this (and your comments are welcome on what meaning YOU derive from the chart) is that both Tier 1 and Tier 2 producers that do not also have (or have not yet generated sales from) a processor license appear to be, on average, struggling in terms of generating reasonable levels of revenue. At a minimum, this suggests that having a very low cost of production will be crucial for such operations.

The chart contains averages, and there are businesses that are significantly exceeding these numbers. As such, if your business has sold more than these averages in any month since you opened, you can infer that you were doing better than the majority of I-502 businesses in the State at a similar interval following the month of their first sale.

All I-502 businesses that booked at least 1 sale in 2014 are represented in the attached chart. It is derived from individual licensee-level monthly sales reported by the WSLCB for calendar year 2014.

“Month” 1 on the chart is the first month in which each business booked a sale (so all businesses with a sale in 2014 are included here). Each subsequent “Month” is the next month of sales FOR EACH BUSINESS. As a result, each subsequent “Month” will include fewer businesses (e.g., “Month” 6 contains only those businesses that first reported sales in June or July).

We welcome your comments and discussion on what you see in these derived data. In the meanwhile, CASP is working on a comprehensive interpretive and predictive view of this marketplace, based on what happened during 2014.

Stay tuned …. It should not be too much longer coming.

 

*If you find utility in this that brings value to your business or plans and are able to, please find it in your heart to donate to CASP — we are a 501c(3), in case 280e doesn’t derail even that deduction.  Some of the stuff we publish might just help with your production and, arguably, be classifiable as COGS.

 

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Cannabinologist uses YouTube Videos to Show Efficacy

by Steve Hyde, Communications Director/Research Associate

In an effort to expand our reach at CASP we will be publishing a series of short stories on the Medium platform. We like Medium because it is designed for participation. You can log in with Fb or Twitter and join the conversation and tweet out to your peeps.

Click graphic below.

Cannabinologist
Follow CASP @reachcasp on twitter.

Market Concentration So Far

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This chart includes most of Fall Harvest and will be updated when more current information is released by the WSLCB

by Dominic Corva, Executive Director

News of market saturation from Fall Harvest should be situated in the context of market concentration. We have previously focused on market concentration by Tier, but after looking closely at the existing data the big news is that seven producers account for 43.7% of all legal cannabis produced through November 11.

We chose the top 7 because it includes all producers that have produced at least twice as much as number 8, BMF Washington (569 lbs). The following table provides their relevant production information. Please note that all production numbers include raw cannabis produced, not just buds; and that crop failures for any reason are not included in the totals.

Top 7 producers through November 11 Number of harvests Total LBS harvested (bud and raw material) Production Share of State Total
PDT TECHNOLOGIES 3 2981 11.78%
THE HAPPY CROWD 2 1934 7.64%
AVITAS 4 1396 5.52%
BUDDY BOY FARMS 6 1263 4.99%
LIFE GARDENS 1 2 1225 4.84%
THE MARKET GARDEN 2 1137 4.49%
CANNASOL FARMS INC 6 1131 4.47%
175 Others 450 14223 56.25%

 

The first thing to note is that only one of the top producers for the year is not a Tier 3 producer: Avitas is a Tier 2 Producer; and that while most of the rest likely fall into the category of “mixed indoor and outdoor” we are looking at mostly outdoor greenhouse production. PDT Technologies, for example, harvested over 2000 lbs in November — accounting for over a quarter of the November crop. They won’t be harvesting anything like that until their first light dep crop, possibly in July 2015.

This example highlights two things.  First, a huge amount of the current “glut” per retail store (remember we are still at less than a third capacity for the state) is coming from a seasonal harvest, and therefore supply issues will resolve themselves within a few months. Producers who are desperate for capital will take lower prices right now, while producers who have thought ahead will reserve inventory for when prices come back up. This is a function (1) of more retail stores to open and (2) far smaller monthly harvests until Fall 2015.

Second, it demonstrates how much a single, dialed-in. Tier 3 outdoor I-502 producer can at this point command major market share. In November 2015, there will be a lot more than one. This leads me to believe that legal cannabis market prices will not only compare favorably with gray and black market prices in less than a year, they may simply compete those prices out of business.

This last point is very relevant to policymakers right now, as they mobilize fiscal arguments against the continuing existence of medical markets. The maturation of the I-502 market will do that work without an expensive, hostile takeover with dubious social policy consequences such as expanding the black market considerably and driving consumers away from the legal market.

In a competitive market, the wholesale price for cannabis depends on the cost of production (sunk costs do not count). In an oligopolistic market — the one described above — a few producers capture margins well above the cost of production, and have a huge advantage over incoming market participants.

This is the social cost of a political decision by the WSLCB to create a limited, slowly developing, regulated as tight as Mike Tyson’s fist in its glory days. That decision was made well before the other major structural drags on I 502 market development became apparent, chief among them vanishing real estate viability. The cause of this is more than zoning, of course: it is also the result of the Association of Washington Cities’ choice to organize against I 502 permitting until they get a share of I 502 state revenue.

The perceived social benefit of that decision should not be invisible here: the WSLCB and the State of Washington have examined Federal guidelines and chosen the most conservative path to legal cannabis possible. Presumably, this means the children have been protected — not those of I 502 applicants who have gone out of business and lost their savings while the tightly regulated market grows.

Further analysis of the existing legal cannabis production landscape is forthcoming.

 

 

Why Cannabis Production is an Agricultural Activity

cannabisAG 

By Dr. Jim MacRae* CASP Research Associate and Steve Hyde CASP Director of Communications

The production and processing of cannabis, as sanctioned under I-502, is continuing to see localized opposition from what appear to be micro-clusters of neighbors who, for various reasons, do not wish to have such facilities located near their properties.

In response, some local authorities have initiated processes that add additional restrictions on where such businesses can locate.   Some jurisdictions have created environments in which the effort, cost, and time necessary to achieve all permits necessary for local legal operation is increased dramatically.

One common tactic that such authorities have used to rationalize these prohibitionist actions is to frame the production and processing of cannabis as being industrial in nature, and not agricultural.

When a local authority denies that growing cannabis is agriculture, they can call it pretty much whatever they wish to call it.  The tendency seems to be to use labels aimed at framing the growing of cannabis as an industrial activity.

This severely restricts the zones that most land-use matrices consider appropriate for the growing and processing of this particular crop.  It also tends to force legal cannabis farms to locate in areas where neighbors may not be particularly compatible with the production of clean, safe harvests.

SB-6505 was passed last year in an effort to maximize the collection of I-502 excise taxes, through denying all agricultural tax exemptions from cannabis production and processing.  This seems to be the basis of local confusion regarding the agricultural nature of cannabis production and ancillary processing such as trimming/pruning, drying, and curing.  Unfortunately, this confusion is compromising the ability of I-502 producers and processors to exercise their Right to Farm and, as such, is putting this State’s long-standing Right to Farm environment at risk.

The following graphic was created to serve as a community tool to help you educate and remind local authorities and concerned citizens that:

-when you plant a cannabis seed

-and give it water, light and fertilizer

-it will attempt to use photosynthesis to grow

-and can yield a profitable crop.

A crop that can help farm families keep their farms …. just like any other plant.

 

*This graphic was inspired by the recent experiences of Dr. MacRae in Snohomish County, where he is a Tier 1 Producer/Processor applicant wishing to use a sub-2000 sq.ft. greenhouse to grow his crop. He also wishes to use that greenhouse for processing (drying and curing). Under current Snohomish County rules, he is not able to do that, in part because the “industrial” activity of curing and drying bud may only be conducted in a structure built to F1 Industrial Building Code standards. In a further run-on extension of this circular (my peers did not think I should say idiotic) logic, the proliferation of such F1 IBC buildings containing legal cannabis in rural areas apparently constitutes an emergency that has resulted in almost 200,000 acres of Snohomish County zoned R5 being no longer deemed appropriate for the use of legal cannabis production or processing.

 

A PDF of this chart is available here. Please download, reproduce, and share widely!

 

 

Legal Production so far: 25,300 lbs through November 11

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by Dominic Corva, Executive Director

Happy New Year! December was a busy month but we at CASP are excited to get back to mapping and analyzing the legal cannabis landscape. The WSLCB recently sent us a full account of how many grams of legal cannabis were produced from the first harvest in May up to November 11, which includes most of the fall outdoor harvest. Updated numbers will be available soon, and we will close the books on 2015 when it does. This post is a preliminary look at the data, which is not publicly available at this time.

As the reader might intuit from the graph, the story is one of logarithmic production growth, although that will level out over the winter since most Tier 3 outdoor production will be dormant for the next 8 months or so. Until then, more producers will be coming online and the indoor and hybrid gardens will try to take up the slack.

The number to know: 25,300 lbs were harvested over seven months from 178 distinct licensees, with about half of that coming in November. That’s the number 1 reason why producer/processors are having a much harder time placing their product, and many are choosing to hold inventory until their wholesale products improve. Smart ones are storing their inventory properly and allowing their product to cure over the next several months, which should help with microbial testing issues that faced so many at the end of the year — we have information on that and will write about it in the coming weeks.

Next up for the data will be breaking down market share by Tier, as we have done in the past, but also by licensee. We want to know how democratic the production economy is, and to do that we will need to measure market centralization. We will also be geocoding licensee harvest numbers to show how production has been distributed throughout the state.

See you soon! We have a lot of forecasting and analysis to do over the next several weeks.

PRESS RELEASE

PRESS RELEASE

December 6th 2014
FOR IMMEDIATE RELEASE

Title: HEALTH SCIENTIST BLACKLISTING AND THE MEANING OF MARIJUANA IN THE OVAL OFFICE IN THE EARLY 1970s

Synopsis

This story illuminates some of the ways that racism and bigotry informed cannabis policy in the Nixon white house. We break new ground by revealing how Nixon actively participated in blacklisting health scientists at The National Institute of Mental Health (NIMH) with empirical research. We show how the administration ignored policy recommendations from a congressionally mandated commission that cost tax-payers millions to produce.

Reviews

O’Shaughnessy’s: The Journal of Clinical Cannabis was the first review this story. The reviewer reminds us that “[I]t wasn’t just marijuana that got prohibited, it was the truth about history.”

LINK
The article is currently published @medium

CONTACT

Steve Hyde
Director of Communications
Center for the Study of Cannabis and Social Policy (CASP)
6701 Greenwood Ave N.
Seattle WA. 98103
twitter. @reachcasp
mb. 206.724.7929
wb. www.caspcenter.org

Link directly to the interactive web story here

I-502 Moratorium Update!

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by Dominic Corva, Executive Director

Yesterday I received another phone call from an I-502 applicant asking after a moratorium update. We do not have the human resources to keep up with our series, but the Municipal Research and Services Center is paid by Washington State to do so and finally has caught up and surpassed our previous work.

We may or may not continue the moratorium geography series, but it is very important to provide direction to people who have the resources to do so. Here is the link:

http://www.mrsc.org/subjects/legal/502/recmarijuana.aspx#table

If you have used our information in the past year, now is a great time to remind you that we are a grassroots nonprofit 501c3 startup run on donations, and that we do have a donate button on the left. I don’t know how many people I’ve encountered in the last six months that have gone out of their way to thank us for our work, but I can tell you how many of those have donated: Zero.

The irony of asking for donations in a post that links to someone else’s work is not lost on me. I like to think of it as showing people what we did in the public interest with hardly a dime to our budget, and what can happen when an organization is empowered to continue their work. The State of Washington has their contract research organizations, and we have never been approached to help despite how far ahead of organizations with way more resources and direct connections to information that percolates within rather than flows out of the system in a limited fashion.

Imagine what we could do with some funding, any funding at all.

Your assistance would be greatly appreciated, and it would be tax deductible.

Thank you,

 

Dominic Corva