With only a few more months until cannabis concentrates become legal in the Canadian recreational market, retailers will want to forecast how these new products could impact sales. Will flower remain a firm staple, or will it be eclipsed by extractions?
Reviewing Oregon’s robust industry can help us glean some insight into what we may expect. The state legalized cannabis for medical use in 1998, and recreationally for adults in 2012. BDS Analytics’ 7th edition report on the State of Legal Cannabis Markets, released in June, cited a total of 561 medical and adult-use dispensaries in operation.
High Supply & Low Prices
Unlike many cannabis markets, Oregon is experiencing a period of over-abundance—to a fault. At the start of 2019, BDS Analytics reported that there were more than 1000 licensed cultivators and 1200 additional cultivation licences pending application. Due to this high volume of producers, it was estimated by the Oregon Liquor Control Commission (OLCC), the regulatory body for adult-use cannabis, that there is enough inventoried product to supply current demand for the next 6.5 years. Production is not slowing either, further increasing this gap.
This imbalance has led to historically low retail prices since 2015. The initial drop was a dramatic 50%—from $14 to $7 per gram. A rise to $9.27 occurred at the beginning of 2016, but dropped to $4.27 at the end of 2018. So far 2019 has seen a record low of $3.84 per gram, and on average was 30% lower in price than June 2018.
Flower sales accounted for 41% ($27.8 million) of revenue year-to-date through June, making for an 11% increase from the previous year. This report also noted that pre-rolls made up 8% ($5.2 million) of those sales. This category shows a steady increase of 20% since June 2018, and 13% increase since 2017 as people show a preference for the convenience of pre-rolled joints.
Concentrates on the Rise
The concentrates market is segmented into two product categories—vape and dabbable (shatter, live resin, etc). Sales for vapes increased by 24%, and 25% for concentrates. Vapes in particular have become the favourite of the two subcategories, making up 69% of the concentrate market in the first quarter of 2018.
Interestingly, live resin saw a 128% sales increase between 2017 and 2018.
Edibles Still Finding Their Way
Currently Oregon’s ingestibles market consists of edible and sublingual products, and with no restriction on formats (gummy bears and chocolate often come to mind), businesses can respond to the market more creatively. For example, in 2018 cannabis “shots” were a very popular item, almost on par with other infused beverages.
Tinctures and capsules experienced low demand between 2016-2017 and made up an average of 9% of sales. 2018 saw an upswing of almost double, increasing the overall sales contribution to 16% ($11.1 million). Demand is continuing to increase—in June alone ingestibles contributed 76% of revenue, and over the year have increased by 21% for edibles, and 43% for sublinguals.
Hemp is the Next Big Trend
Due to Oregon’s unique supply glut, a number of growers are pivoting to hemp for CBD products. With the passing of the Farm Bill in 2018 more companies are producing products without the psychoactive effects of THC. Demand for these products is high and since growers can potentially earn over $100k for an acre of hemp, we could start to see current licence holders put more effort into their hemp grows, which cost less to permit and produce than cannabis.
The over-supply of flower is still unmet by demand, and although Canada does not share the same supply issues, we should be aware of that potential problem in the future. As new technologies and product varieties emerge Canadians can expect consumption preferences to become closer to those in Oregon.
Dollar Sales by Category as of June 2019
o Flower, 41%
o Concentrates, 30%
o Ingestibles, 16%
o Pre-rolled joints, 8%
o Accessories, 3%
o Other cannabis, 1%