Should cannabis be on the stock market? Sure, some cannabis companies are already publicly traded (and doing extremely well, by all accounts). Canadian cannabis companies like Canopy Growth Corp., Aurora Cannabis, and Cronos Group Inc. have all made a mark in their respective stock indexes, frequently crushing expectations. But what about trading cannabis as a commodity?
Agricultural commodities such as corn, wheat, coffee, and soybeans have been traded for centuries. Is cannabis that much different?
While it can be argued that it may not be appropriate to trade medical marijuana, with the onset of legalization in Canada and the new recreational market taking root, it was perhaps only natural that an entrepreneur would spy opportunity. With the Canada Cannabis Spot Index, we are one step closer to seeing cannabis become a tradable commodity.
The Canada Cannabis Spot Index
Cannabis Benchmarks, a subsidiary of New Leaf Data Services LLC, has released information about U.S. cannabis prices and, more recently, created the Canada Cannabis Spot Index (CCSI). The CCSI aims to track average wholesale prices for dried flower across various Canadian licensed producers.
According to Cannabis Benchmarks, the goal of the CCSI is to assess prices nationally, though eventually, they plan to release pricing at a province level.
In their review of the data, Cannabis Benchmarks noted that prices appear volatile since legalization, with an average wholesale price of C$7.50/gram. Since October 17th, when adult-use cannabis was legalized in Canada, the group has recorded price shifts between C$6.66/gram and C$8.23/gram. It appears that prices are slowly climbing for now, perhaps due to supply shortages, though they could decline as increased production comes on-line.
In their introduction to the new index, Cannabis Benchmarks also notes how the Canadian and US cannabis markets differ. In US states that allow for cannabis sales, there is a more free-market approach, with buyers and sellers setting prices between them. In Canada, provinces have a hand in setting prices. And in many provinces, the local government also has a hand in the sale of cannabis—something that no U.S. state has attempted with recreational cannabis.
Why Does It Matter?
Information regarding wholesale marketing could help retailers and provinces better negotiate with producers in the future. And if there comes a time when cannabis joins the rank of tradable commodities, Cannabis Benchmarks expects to publish real-time pricing, much like you see with wheat trading.
For individuals who enjoy cannabis to relax, this may all seem a bit obtuse. Ultimately, the wholesale cannabis price isn’t what consumers will be paying for cannabis. Consumers will still be covering taxes that vary among provinces. So while they can watch the numbers—much like we do with the price of oil barrels—for now, it likely won’t have too much of an effect on what they’ll actually pay in the store.
However, for cannabis investors, it’s another opportunity to make headway in a new market that is ripe with opportunity. It’s an exciting opportunity that can potentially open the world of cannabis investing to more potential investors and help bolster a fledgling industry.
Current Industry Predictions
So with this data in hand, what are analysts saying about the Canadian cannabis market?
According to Tom Adams, BDS Analytics’ managing director of industry intelligence, Canadian cannabis prices will soon be declining.
Canadians have shown that cannabis is in high demand across the country. However, as more companies become licensed producers or scale their production processes to introduce more legal cannabis into the market, it’s expected that Canadian cannabis prices will fall. Colorado saw a similar decline in cannabis prices after legalization, with the price of cannabis in the state falling by 50% over 5 years.
Analysts warn that the decline in price won’t match that of Colorado or of other US states that have seen similar declines since most Canadian cannabis growers must grow their plants indoors, which leads to more expensive crops. However, according to their predictions, there should be a noticeable decline.
In terms of sales, it’s predicted that that by 2022, the Canadian cannabis sector may bring in up to US$5.5 billion annually. Plus, with the additional jobs it is creating, it could mean great things for the Canadian economy.
Whether we’ll be seeing cannabis traded as a commodity is anybody’s guess, but if current progress is any indication, it seems more likely than not. Legalization is still years away in the US, so if any country is going to initiate the process, Canada is poised to do so.