Vessel Logistics, a San Francisco cannabis distribution company, released a 16-page Cannabis Harvest Projections Report based off newly released data from the California Department of Food and Agriculture. The report suggests that the California Cannabis Industry is ramping production far beyond market demand, which could lead to significant oversupply and falling wholesale prices. By the beginning of April 2019, California will have over 1,142 Acres of permitted cannabis farms which correlates to an estimated 9-Million-pound yearly production capability, even if those permitted farms are not granted full annual licenses. The report forecasts that supply will outpace demand by 1.5 X - 2 X causing a temporary reduction of cannabis flower and concentrate prices.
– New regulations will increase expenses just as oversupply will drive down farm revenue, creating a risk of overexposure and business failure for many California farms.
–The average wholesale price for whole plant could fall well below $200 per pound, which will represent a drop of 50% from 2018 pricing.
– Many of California’s 5021 permitted farms will cut or cease production after selling their harvests below production cost.
– The greatest impact will be felt by the 2200+ outdoor and mixed light licenses in Northern California where local regulations limit the number of permits per parcel and average production cost exceed $300/lb.
California does not have enough permitted retailers: The report suggests that the negative effects of oversupply will be exacerbated by California’s underdeveloped retail market, which averages one retailer for every 42,000 residents. In 2018 the steep reduction of active retail locations was one of the primary causes for the State's shrinking overall market size. The retail sector has been primarily restrained by city and county governments, who have unintentionally limited competition and ease of access for many consumers. The report states, “California currently has only licensed 631 storefronts and 311 delivery companies.” In 2016 there were 1060 storefronts located in the City of Los Angeles alone, 429 more storefronts than are currently permitted statewide.
An Imbalanced supply & demand dynamic will hurt farmers: The report predicts wholesale demand to be in the range of 1.8M lbs. to 2.2M lbs. by volume, which represents a significant increase compared to 2018. Demand will consistently increase as wholesale prices fall and more retail licenses are issued. The report forecasts, “California will reach a surplus of nearly 2M lbs. Tons of cannabis by November 2019, even after significant production cuts.”
About Vessel Logistics: Vessel Logistics is a processor, manufacturer, and wholesaler focused on providing high quality, tested, and consistent cannabis and manufactured cannabis products. We turn ideas into market ready products by offering consistent and scalable solutions that allow our customers to focus on their brands with confidence.