Canadian cannabis wholesale prices tumbled more than 40% last year as companies continued to work through stubborn supply gluts and struggling cultivators chose to sell off their unsold marijuana instead of destroying it.
Looking at the latter part of 2023, some industry experts see the oversupply of wholesale cannabis easing somewhat as more licensed producers leave the market and the remaining cultivators adjust growing volumes to match demand.
But others are more bearish and foresee wholesale prices continuing to fall.
“Oversupply and excess capacity have resulted in high-quality flower being widely available and sold well below the marginal cost of production,” Zach George, the CEO of cannabis producer SNDL, said in a news release this week.
Citing industrywide overproduction, the release noted that SNDL is eliminating about 85 employees and scaling back activity at a production facility in Olds, Alberta.
MJBizDaily previously reported that the total amount of stored cannabis by licensed producers, wholesalers and retailers had reached 1.4 billion grams (1,543 tons), citing the latest Health Canada data.
Prices of bulk wholesale flower fell to record lows in 2022 on the Canadian Cannabis Exchange (CCX), a live trading platform for B2B wholesale marijuana, according to the company’s annual Bulk Wholesale Cannabis Pricing Report.
Prices on the exchange, which is privately held, are considered a barometer for wholesale prices in Canada and do not reflect prices for all wholesale transactions in the country.
Canada isn’t alone. Wholesale prices have been falling across the United States because of a glut of product.
In Canada, the average price per gram for bulk wholesale flower in 2022 was 1.06 Canadian dollars (79 cents) a gram on the CCX, representing a decrease of 41% compared to 2021, which saw an average price of CA$1.80 a gram.
“The big takeaway here is that 2022 was a super challenging year for Canadian cannabis,” Steve Clark, the CCX’s chief executive officer, said in a phone interview.
“We started seeing in the back half of the year a lot of consolidation, a lot of small to midsize cultivators essentially started to run out of free cash flow or lines of credit.”
Clark said that was one of the factors driving prices lower.
“People were almost jumping over each other as the offer prices came down, just to move product that had been sitting in the vault,” he said.
“That, paired with a number of larger producers needing to get capital at quarter end and year end, really became that perfect storm where it’s really a race to the bottom.”
Other factors for falling wholesale prices cited in the CCX report include:
- Overbuilt infrastructure leading to oversupply.
- High taxes, which squeezed wholesale prices.
- Lower retail prices, which put downward pressure on wholesale prices.
“Companies that overproduced were forced to drop prices of aged product and CCX saw this throughout early 2022 as larger lots were liquidated, including aged flower and sizable volumes of popcorn bud and smalls that did not sell in 2021,” the report noted.
Higher THC, lower volatility
The Canadian Cannabis Exchange facilitates transactions for six indices based on THC content.
Generally, flower with lower THC content experienced wholesale price declines on average last year.
For example, flower with THC scores in the 15%-20% range, or what CCX calls “Index 3,” traded at a weighted average price of CA$0.29 a gram last year, approximately 62% lower than in 2021.
“Heading into early 2023, do not expect Index 3 price levels to recover materially, as a robust supply of higher-potency flower will continue to weigh on the market,” according to the CCX report.
“Index 3 is trending towards extraction grade and converging with trim pricing.”
Flower with THC scores in the 20%-25% (Index 4) and 25%-30% (Index 5) ranges also saw substantial declines in average prices.
Index 4 traded at an average price of CA$1 a gram in 2022, while Index 5 was CA$1.56 a gram, representing declines of almost 50% for both categories compared to 2021.
Erin Butler, vice president of corporate development for the CCX, said “there’s an immense amount of volume in that 20%-25%, so the competition for sellers is really, really tight right now.”
The report said flower with 30%-plus THC was more stable than other dried flower indices, finishing 2022 between CA$1.95 a gram and CA$2.12 a gram in four out of the five months it was published.
In 2022, the CCX did just over 45,000 kilograms of flower and trim deals in around 900 transactions.
‘Vault liquidations’
Dan Sutton, CEO of British Columbia-headquartered cannabis producer Tantalus Labs, expects prices will continue to fall.
“What we’re anticipating is further gluts of supply that drive prices down even further,” he said in a phone interview.
“There was some notion that perhaps we’d find the price floor. The problem with average prices in the wholesale market around a dollar for 20%-22% cannabis is that it is way below production costs for your average craft-scale producer.
“For the next six months, these vault liquidations will persist, and that will pull prices down, in my view.”
Sutton cited the increasing number of cannabis producers as one of the factors driving down prices.
He said general wholesale market trends, such as falling overall prices, do affect the price of higher-quality flower sold by craft producers.
“The reality is, prices are always reflective of other quality grades,” he said.
“So if I have a better-quality product than commodity grade, and commodity prices have come down 40%, it pulls on my own pricing.”
A number of cannabis producers called it quits in 2022, such as Zenabis Global and Eve & Co.
“We’re seeing artificially deflated prices from these liquidation events, and that is going to challenge other wholesalers who are building a business in the wholesale market,” Sutton said.
Fourteen of the 35 Companies’ Creditors Arrangement Act (CCAA) filings in Canada – or 40% – between Jan. 1 and Dec. 22 of last year involved cannabis companies.
“For craft cultivators and small (cannabis) businesses, the time is now to be as lean as you possibly can,” Sutton said.
“Survival is victory. That’s been true the last couple of years and it will be true in 2023.”
‘Follow the leader’
CEO Clark said THC remains the main barometer for price, but terpene profiles are becoming more sought after by buyers.
Clark suggested it’s important for cultivators to try to stay ahead of trends.
“It’s not always following what everybody else is doing, but staying ahead of trends and trying to find a unique terpene and cannabinoid profile,” he said.
“In the Canadian market, it’s a little bit of ‘follow the leader.’ There’s a popular strain, a couple guys grow it, and then we’d see more entries starting to grow that (cultivar) four to six months later.”
Clark said growers need to find unique cultivars with more than 25% THC or risk not being picked up by companies’ respective distribution channels.
Clark and Butler said buyers are emerging for forward lots, for delivery later this year, in the 25%-and-up categories.
“They’re looking to lock up good growers now at a slightly above-market price,” Clark said.
“They’re starting to realize that with a lot of these larger cultivators shutting down facilities, consolidation and closures of some of the micros, and there’s a lot of demand for high-quality flower.”
Matt Lamers can be reached at matt.lamers@mjbizdaily.com.
