No Six-Year Oversupply: Measuring The Oregon Cannabis Market With Accuracy
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What are they going to do about the oversupply in Oregon!?
All year, this question has dominated news sources peddling the saga of Oregon’s more than six-year oversupply of cannabis -- when, in fact, the market had an undersupply in some sectors and is certainly gaining in value overall. Anyone looking at day-to-day sales data currently in Oregon knows that it reflects way higher averages than reported even as recently as September in Vice. So, where is the press getting this seemingly false information? By being ignorant of the caveats associated with the industry and relying only on numbers pulled from an OLCC report calculated on flawed methodology.
The Oregon Liquor Control Commission (OLCC), in their 2019 Recreational Marijuana Supply and Demand Legislative Report, tried to apply a conversion algorithm to breakdown cannabis supply into units of THC. They will be the first to admit this is an imperfect system; however, at the time, it was the most straightforward way they had to correlate and distribute the data. As we well know in this world, the tradeoff for straightforward is accuracy.
In reality, it’s nearly impossible to calculate cannabis supply because products are packaged and weighed differently. All cannabis is tracked in a state regulatory system known as METRC, where, from seed to sale, one can see all the cannabis being traded in a given state. However, one cannot simply pull the current METRC supply numbers as a singular data point. Elements of Data Modeling must be applied, and the OLCC isn't exactly a data analytics company with endless resources to pour into a large data analysis team. They're a regulatory body. Thus, they made choices that we now see had consequences.
Here are three specific ways that this all went wrong:
1. Data Modeling
In their simple approach to calculating supply, the OLCC converted all supply to THC units, and then applied weight to that THC in the form of equivalent pre-cured flower (wet-weight). While you have to admire their effort to make clean-cut math out of nuanced farming and production, it's simply not an accurate estimate of the current cannabis supply on the market.
It is understandably challenging to calculate an entire state’s worth of cannabis with METRC data alone. Totaling up plant material isn’t the problem; things get tricky when you add in the other products. Concentrates, for instance, are sold by either grams or kilograms (based on weight) or boxes of 0.5g - 1g carts -- which are based on unit and weight, not clearly defined in the METRC data. This means that a 1g cartridge of concentrates gets converted into its equivalency in wet flower. The same goes for edibles, topicals, and everything else in the supply chain. It is all turned into wet flower.
2. Overly Inclusive Supply
Another unmentioned factor at play is that these calculations likely include supply that is sitting in storage, unable to be sold. When a farm cures their harvest, they may use a storage company to hold that product for them until it sells. These storage facilities are METRC licensed, and farms have to officially transfer that inventory within the system to the storage companies.
However, sometimes, those farms go out of business in the time it takes to find a buyer for the stored supply. When the farm shuts down, their inventory is stuck in storage. In a cruel twist of fate, companies with storage licenses aren't permitted to sell cannabis they have in stock because it's assigned to the original licensee. I’ve spoken with several storage company owners who are sitting on hundreds of pounds of cannabis they can't move; and that supply is not calculated correctly in the totals mentioned by the OLCC.
3. Summary Language Caveats
Finally, the OLCC report opens with a summary of the findings that was vastly misunderstood and publicized irresponsibly. The OLCC clearly stated: "As of January 1, 2019, the recreational market has 6.5 years’ worth of theoretical supply in licensees’ inventory accounted for and contained within Oregon’s Cannabis Tracking System."
The summary goes on to lay out heavy "if" caveats, such as: If all currently pending Producer Applications were approved, estimated production would increase to nearly 4,000 metric tons of wet weight. This language could and should be a little softer to avoid confusion and the caveats to their findings presented in higher priority, but they are all in there nonetheless.
"If" supply continues to increase, and "if" more licenses are pushed through that cultivate at the average, and "if" converting supply to wet weight tonnage is in any way accurate, then "theoretically" there is 6.5 years of supply.
That is a far cry away from the message that Oregon has 6.5 years of supply on the market, which is still shared nationwide. We have also found that those "ifs" were never realized. Production did decrease, less licenses were pushed through, and the conversion is not accurate.
There Is A More Accurate Measurement Out There
Relying on any singular source of data will inevitably lead to folly, particularly when that data lumps varying factors into one bottom line. While others saw an oversupply of cheap outdoor flower, we’ve tracked an undersupply in other products since last October at the launch of our B2B cannabis wholesale software in Oregon. When you use data that parses out the individual product categories -- and their respective supply/demand dynamics -- you begin to see a complete picture.
Here’s a snapshot of what we’ve seen at Confident Cannabis, which continually runs contrary to the popular belief that cannabis is trading at $200-300 per pound (the singular metric cited in relation to the supply prices in the state):
a. Outdoor flower increased from $500-800 in May to $800-1,000 leading into harvest season.
b. Indoor flower trading from $800-1,000 in May increased to $1,800-2,400 as of this article.
c. Distillate tightened up from $1-6/g to $5-6/g.
d. Vape cartridges slightly increased from $8-12/.5g cart in May to $9-14/.5g cart in September.
Let The Numbers Speak
Because our team participates in trades on the market, we know what buyers want, and sellers have to offer. As a result, our real-time data taps directly into market supply and demand analytics. We track changes weekly and post data monthly, so everyone has an up-to-date look at the numbers. As a result, producers use our data to price their products based on reality (not guesswork).
Follow along as we publish monthly Market Reports at confidentcannabis.com/news