Inventory Stories June 2015

Chart by Dominic Corva, using data from”Weekly Marijuana Report” http://www.liq.wa.gov/records/frequently-requested-lists, accessed 6/18/2015

By Dr. Dominic Corva, Executive Director

Late Spring 2015 has come and gone. While wholesale prices have stabilized relative to Winter’s crash, Washington’s legal cannabis market exhibited zero evidence of a market clearance that usually leads to more favorable wholesale prices in late spring and early summer. We clearly have more than enough cannabis to serve approximately 150 open I 502 recreational stores, and that does not bode well for I 502 producers for Fall 2015.

The chart above was created by using the WSLCB June 17, 2015 “Weekly Marijuana Report,” in which Usable Marijuana Sales are subtracted from Usable Marijuana Production on a monthly basis to show an accumulated inventory of 6,293 lbs, about a month and a half of supply at the current 4000+ lbs per month sales rate. This is actually a “processing” inventory, not a production inventory, so we don’t really know — nor can we know, as far as I can tell — what the production inventory might be. On the same weekly report, “Marijuana Flower Harvested” does not equate with “Usable Marijuana,” as the former is a raw production number and the latter is what ultimately gets packaged out of said harvest. Producer inventory can and does sit in storage until it is packaged — “processed” — for the wholesale market, which usually only happens when a processor thinks they can sell it.

So the chart above represents the difference between when a processor thinks they can sell it, and when they actually do. And of course usable marijuana can be turned onto all sorts of processed goods, not just flower. Here is the WSLCB harvest chart, reproduced below:

 

The chart above gives us raw numbers, which we need to qualitatively assess as “indoor”; “light dep”; and “outdoor” in order to get a sense of what’s going to happen later this year. Indoor production occurs year round; light dep is a type of outdoor usually harvested June-August; and “outdoor” refers to full-term outdoor harvested September-November (the “November” part really refers to when we manage to count October’s harvest). I’ve created a table below for consideration.

	Pounds Harvested	Type of Harvest
July	352	Indoor likely
August	1014	Light Dep and Indoor
September	1907	Light Dep
October	7172	Mostly Outdoor
November	13702	Mostly Outdoor
December	4051	Indoor likely
January	4016	Indoor likely
February	3515	Minimum indoor capacity
March	5117	Indoor likely
April	5420	Indoor likely
May	6426	Indoor likely

 

As you can see, indoor production has been surging this year and now seems to represent about 5,000/month. There’s plenty more to come, but note that about half of last November’s supply shock from outdoor is being produced on a monthly basis. By November we could have 1.5X that much, or 7500 lbs/month.

The question is, what’s November 2015’s outdoor harvest going to look like? Remember last year, about half that production came from SIX Tier 3 outdoor producers (plus ONE Tier 2 indoor), out of 185 “active” producers at that time. We have 404 producer/processors licensed right now, and we expect about 30 of those to be Indoor Tier 3s; 44 to be “Both” indoor and outdoor Tier 3s, and about 47 of those to be “outdoor” Tier 3s, using WSLCB information provided to CASP to create sample percentages for the industry for 160 I-502 producers.

That’s about twice as many licensed Tier 3 outdoor producers as there were last November, and of course it doesn’t take into account Tier 2 outdoor production (Tier 1 outdoor barely exists). Further, that’s the number of outdoor producers who are potentially able to grow all year, including light dep production. Light dep canopy does eat into full-term canopy projections — how much, I have no idea at the moment. But compare with last year’s cohort, which began in mid-lat July as opposed to April.

Let’s get back to simple math. At this rate, it’s not unreasonable to project indoor harvest capacity in November between 7000-8000 lbs. Let’s conservatively project outdoor production capacity at least three times the capacity as last year, but probably more like 5X-7X last year’s capacity (note that indoor production is up at least 10X from July 2014, right now). That’s 39,000 lbs. of outdoor, and 7500 lbs of indoor, for a November harvest of about 46,500 lbs.

Then, add the inventory that was accumulated over the previous 12 months. Currently, 6,293 lbs, or a month and half supply at current retail movement.

Add light dep to the picture. Consider the degree to which light dep production will happen in the next three months — we should have a better idea of what that means next month, when the first light dep data should become evident.

Add to that the unknown quantity of “Marijuana Flower Harvested” but not produced — from last year, light dep, and indoor.

What can we project? I could pull numbers out of thin air all day long but I prefer not to do so in this forum. We can, however, be qualitatively certain that there will be a harvest tsunami that will leave many producers — if not most — with Serious Inventory Problems.

Many, if not most, will go out of business. It’s not like the industry has lots of capital to tide it over till it can be sold — in fact, post-tax season, most producers and producer/processors struggle to stay afloat now. While concerns about how much of the I 502 industry will go under can be thought about as a “private” concern, here’s a public one: if you are a producer sitting on several hundred pounds of cannabis you can’t sell, and you decide to liquidate, it’s going to be awful tempting to liquidate outside the legal market.

There’s plenty we still don’t know, and lots of information yet to come in. Let’s see if the WSLCB moves quickly to license existing medical retailers with “medical endorsements” — there are about 400 of those in the state, and maybe half of them could convert very rapidly into I-502 retail points. That would help considerably. It would also help considerably if the WSLCB could open up the remaining 160 or so retail lottery winners, but a significant chunk of those simply can’t open because of local jurisdictional bans. And what about the retail applicants that didn’t win the lottery? Many of those are current medical access points, so that would help. But many of those are not going to be happy to get jumped in line by medical access points that were not in the lottery.

The solution is simple, of course — open up the rest of the retail applicant pool to all lottery applicants; and also move to convert as many existing medical access points as possible as can into the I 502 retail system with “medical endorsements,” as must happen anyway.