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Summer 2015 Forcast

February Forward assessed at $1,550 per pound.
By February of next year, many buyers and sellers are anticipating that a significant portion of outdoor grown cannabis will have been sold off, and that prices will be climbing from their fall seasonal harvest floor.  While uncertainly remains regarding the fall harvest, industry participants are preparing themselves for what could be rough year for supply due to drought and heat in the west, plus continuing efforts to reign in unregulated aspects of state markets.

Wildfires may play a significant role in determining future supply if they are not able to be contained. In addition to northern California, southern Oregon is experiencing wildfires in rural Douglas County, north of Medford, an area that is home to many outdoor and greenhouse grows. A wildfire has also been burning in Chelan County, in Washington state, this week, though that area is not home to a significant amount of cannabis cultivators.

More raids took place in northern California in the last week. Though all reported raids were small scale and will not affect prices significantly, officials observed an outdoor grow of nearly 5,000 plants near Philbrook Lake in Butte County to have a dwindling water supply, which had been diverted from a nearby creek. According to reports, unsuccessful attempts had been made to build a makeshift reservoir for water storage. Growers who see their natural water supplies dry up can resort to buying water and trucking it to cultivation sites, a costly proposition that can also draw unwanted attention to illegal grows.

The Denver Post reported this week on the expansion of growing operations in Pueblo, including a company that is buying up land, water rights, and erecting huge greenhouses. Pueblo County Commissioner Sal Pace stated that 35% of the county’s construction dollars last year were devoted to cannabis related projects. Cultivators are flocking to Pueblo to take advantage of cheap land and available water at a time when warehouse space in Denver is hard to come by and increasingly expensive. The area typically also provides warm, sunny, dry conditions, which are optimal for outdoor and greenhouse cultivation. Hemp cultivation licenses have also been given out to growers in Pueblo.

New York last week announced the five companies that will receive licenses to grow, process, and dispense medical cannabis. Of the winners, three of the five are groups that operate currently in other states with legal medical cannabis. By law, dispensaries must be operational within 180 days of receiving a license, meaning that, barring lawsuits or other administrative delays, New York’s program should be up and running by January 2016.

 

Spring 2015 Forcast

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Forward Curve unchanged.
Forward deals this week were priced consistently with last week.  Most deals continue to terminate in late October. For outdoor and greenhouse producers, the end of July and first half of August constitute the middle of the flowering process; a relatively uneventful and stress-free time, speaking strictly in terms of cultivation concerns. Plants are set after the intensive maintenance required of the early flower period has been completed, while the stress and anxiety prompted by the imminence of harvest is not yet pressing.

Regulators and businesses in California are attempting to lay the groundwork for what most consider the imminent legalization of recreational cannabis, which groups are attempting to place on the November 2016 ballot. Jerome Horton, the chairman of Los Angeles’ Board of Equalization, announced his support for a Cannabis Tax Enforcement plan, as well as an amnesty program for cannabis businesses. According to the BOE, 935 cannabis businesses are active in LA, of which 258 (28%) are operating without a BOE seller’s permit, among other possible taxes and fees that they may be skirting. LA officials are hoping that an amnesty program would be effective in bringing cannabis businesses that are operating without paying proper taxes and fees in line with existing law.

Delivery services, which in most states would not be permitted under existing regulations, continue to proliferate in unregulated California. In San Francisco, a group of 12 delivery service companies are attempting to procure a common office space. The space would be used primarily for weighing cannabis and preparing deliveries, as well as administrative tasks, but would also allow the city to conduct oversight in the form of health inspections, scale audits, and ensuring proper taxation. Prices in California have been consistently lower than in other states with legal, regulated markets and will likely remain that way through the end of the year and into 2016.  August forecasts for the Emerald Triangle area call for favorably dry conditions, provided growers have sufficient water, with temperatures in the 60s.

Across legal states new operations and existing ones looking to expand are finding more willing, vetted investors to fund projects. Previously stalled projects are getting underway and will have a significant impact on the market in 6 to 9 months. This is especially true as new facilities and additions generally incorporate more advanced technology, in addition to building on a bank of established industry knowledge that did not exist previously. Additionally, more operators with commercial agricultural backgrounds are entering the field, bringing general horticultural knowledge and expertise not possessed by the vast majority of the initial wave of cultivators.

August forecasts for Denver and Pueblo appear favorable for indoor and outdoor operations. Both areas will see temperatures in the 80s with very little precipitation. Water for irrigation is not restricted at this time in Colorado and precipitation is not desirable for outdoor cultivators as the fall harvest nears, as it will promote crop loss via molds and mildews.

Similarly sunny conditions are forecasted for both eastern and western Washington, where a group of attorneys and the nonprofit organization Sensible Washington are raising funds to overturn Senate Bill 5052, the law that would eliminate collective gardens and shut down a great deal of medical dispensaries. In general, the group is seeking to preserve a medical cannabis market in a state that is attempting to maximize tax revenue by rolling its existing medical program into the retail one by July 2016. The maintenance of a medical system in Washington would suppress average prices a bit, though additional regulations and tracking requirements will likely be imposed regardless, making cost of production more expensive for medical producers than it is currently.

Southern Oregon remains hot, with forecasts calling for high temperatures above 90 degrees consistently, with virtually no precipitation. Depending on their scale, outdoor cultivators employ a variety of methods to combat excessive heat, including shade cloth and portable evaporative coolers, though the battle is a difficult one.

Hawaii will begin the application process for licensing dispensaries and cultivators beginning in January of 2016. Currently, medical cannabis is legal in Hawaii, where about 13,000 registered patients reside and obtain cannabis through unregulated home growers and caregivers. The state will license up to 8 businesses, which must be vertically integrated and are allowed to open up to 2 dispensaries each. Initial and annual licensing costs are high – roughly $75,000 initially and $50,000 annually, leading some to fear that eventual pricing will be out of reach for most patients. Beginning in 2018, Hawaii also plans to offer reciprocity to out-of-state medical cardholders in order to capture revenue from a portion of the state’s plentiful tourists.

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