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 While a smoker may know the going retail price for "Strawberry
Diesel" or "Buddha's Sister", the sector's wholesale tier still
operates much like a black market because of ongoing federal
prohibition, despite legalizations in 30 U.S. states and Washington
D.C. since the 1990s.
That left Rubin and Laird puzzled on the investment value of a
dispensary, a weed farm or a factory making pot-infused candy. The
problem spawned a different investment: The founding of New Leaf
Data Services LLC, a Stamford, Conn.-based wholesale price data
service that fields reporters to take on the steep challenge of
cataloguing going rates.
Started three years ago, New Leaf now publishes weekly benchmark
spot prices and forecasts on wholesale indoor-, outdoor-, and
greenhouse-grown marijuana for 17 regions with legalization laws.
New Leaf makes money from about 350 pot proprietors and other
subscribers who buy reports and custom analytics. It has raised
money from investors who want exposure to the cannabis sector
without the risk of breaking federal law.
The model is roughly based on S&P Global Platts, a firm where Rubin
once worked that researches and publishes wholesale prices for crude
oil, fuel and other commodities such as metals or agricultural
crops.
The task is much harder for pot, and New Leaf's experience stalking
prices sheds light on the murky trade of what might be the
fastest-growing U.S. commodity, sold legally and illegally for
untold billions of dollars.
Cannabis firms still deal almost exclusively in cash to avoid a
paper trail or because they have almost no access to banks and
financial services. Because it's illegal to transport the drug
across state lines, prices and available products vary widely in
different regions based on whether a state has both medical and
recreational markets and the number of licensed dispensaries and
producers.
Last week, spot prices for flower in Alaska were $5,496 per lb,
while prices in Colorado and Oregon fell to historic lows of $1,008
and $1,166, respectively, according to New Leaf.
(For a graphic on state marijuana laws and price differences, see:
http://tmsnrt.rs/2AFalvZ )
Legal pot prices are also impacted by supply and demand fluctuations
in the illegal market, and the spread between the two can vary.
In California, regulated market prices are more than $1,000 per lb,
whereas prices for illegal weed can be as low as $500 per lb,
estimated Scott Davies, a California cultivator. Legal market
marijuana tends to be more expensive because supplies are more
restricted and because it is taxed.
"Consider each state to be a different country when it comes to
their laws, amount of licenses issued, what the qualifying
conditions are for entry into their medical program, as well as what
the political climate and current illicit market looks like," said
Nic Easley, one of New Leaf's market consultants.
Easley, a disabled veteran of the U.S. Air Force, said he moved to
Colorado in 2006 to use cannabis to ease the pain of injuries. He's
one of New Leaf's team of a dozen price experts who chase down their
market data and intelligence through a network of commercial players
and cannabis industry groups, such as the Oregon Retailers of
Cannabis Association (ORCA). The data suppliers agree to submit
weekly prices anonymously and, in exchange, get discounted
subscriptions or other services.
LEGAL BUT UNDERGROUND
A multi-billion dollar cannabis industry has developed despite
federal prohibition, but many executives, farmers and employees are
still wary of federal prosecution.
[to top of second column] |
Davies, a farmer in Humboldt County, California - a region renowned
for its premium cannabis – said growers have historically done and
still do handshake deals with counterparts vouched for by shared
acquaintances. Davies sells directly to dispensaries, essentially
relying on the rumor mill to set prices.
"It's all been word-of-mouth, through people we know and trust who
are established players," he said.
But the market in California - which recently legalized recreational
use - is evolving rapidly and becoming more like a traditional
industry, with buyers and sellers now sometimes meeting at industry
events, Davies said.
Market transparency has seen a boost from heightened regulations as
authorities in states like Oregon rolled out legal recreational
markets, said Casey Houlihan, head of ORCA.
Under the new rules in that state, dispensaries must purchase
cannabis from registered producers, who are required to track their
sales and report them to the government. Previously, dispensaries
could buy more liberally through a medical marijuana program.
The data New Leaf collects is still fairly rough, and the marijuana
market has nothing like national benchmark prices or futures
contracts common to other legal commodities trades. There's no real
way for businesses to hedge, and price-setting remains largely
guesswork, said Josh Richman, senior vice president of sales and
marketing for Franklin BioScience, which grows cannabis and
manufactures branded products, such as mints, in Colorado, Nevada
and Pennsylvania.
"There isn't something where I can sell long or short," he said.
GRAPHIC: U.S. legalization legislation and regional pot prices -
http://tmsnrt.rs/2AFalvZ
BLUE DREAM, GREEN CRACK AND GORILLA GLUE
The retail market is somewhat more transparent, and a pricing
service called BDS Analytics runs an online database of more than
140,000 types of pot and pot products. BDS sells pricing and
popularity data to retail shop owners.
Roy Bingham, who co-founded BDS Analytics in 2015, is a veteran of
the finance and consultancy industries.
"We knew this data is really invaluable for the retail business,"
Bingham said. "There are people in this industry who have been in
supply chains at Walmart, GNC and other mainstream operations."
His firm collects point-of-sales data from retailers and lists the
details for products such as "Blue Dream" and "Green Crack".
Joseph Hopkins, co-owner of a dispensary called The Greener Side in
Eugene, Oregon, uses the data to deal with suppliers.
"When vendors come in and say they have x, y, z products, I can go
back and look at whatever the going rate is for that product," he
said.
Still, the metrics are imperfect. State regulators increasingly
perform quality tests to ensure safety, but no one checks to make
sure that what someone is selling as “Green Crack” really matches
weed branded under the same name elsewhere.
The data show variations in demand for various brand among regions.
For example, Blue Dream has reigned as the most popular strain for
flower in Colorado and Washington since 2014. But in Oregon, tokers
favor a strain known as GG - formerly "Gorilla Glue," until its
purveyors got sued by the makers of the actual glue by the same
name.
(Reporting by Chris Prentice; Editing by Simon Webb and Brian
Thevenot)
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