Ask Our Experts 12/9/2018

Q: Are there any estimates about how much cannabis is being produced nationally, and how much of that is illicit? We are hearing a lot about the large outdoor grows in Oregon and California feeding both the illicit and legal markets. We have also heard that the 2017 harvests in Oregon and California were huge and created a surplus in the market. Any news about what the 2018 harvest is looking?

A: As “Croptober”  has turned into December and the harvest nears completion, the biggest questions are about output. New Frontier Data calculated the estimated U.S. production levels as a foundation for The 2018 Cannabis Energy Report released in October. The report found that the estimated U.S. total output in 2017 was approximately 16.4 million pounds. Estimates for this autumn’s yield are higher, at 17.2 million pounds.* It’s worth noting that the 2016 West Coast harvest was disastrous. A typhoon from the Pacific Ocean produced heavy winds and rains right as the crops were maturing. With the plants damaged and wet, many harvests went to waste, and the normal seasonality in prices never materialized. Supply shortages ensued. Conversely, the 2017 harvest was the best in recent memory: Optimal temperatures, rain, and growing conditions created a bountiful crop for a record output. Farmers who were desperate for cash from the previous year flooded the market to maximize their revenues and restock their coffers. Unfortunately, that resulted in oversupply, and dramatically lowered prices by as much as a 50% decrease in price year-over-year. The pricing decline affected farmers almost as negatively as the previous year’s crop failure.

Based on harvest figures from the Oregon Liquor Control Commission (OLCC), the state’s regulatory agency for cannabis, the legal harvest this year looks to wind up somewhere between the results of the two previous years. There is more supply hitting the market than in previous years, but average yields per square foot are down. The higher output is simply due to there being more growers in the current market — a circumstance soon to change, and quickly.

There are clear indications that California and Oregon growers are supplying both illicit and legal markets. New Frontier Data roughly estimates that 82% of all output is sold through illicit channels, with 75% of all illicit supply coming from California. Though most states (33 plus Washington, D.C) have now legalized medical cannabis, those sales are only for medical patients, leaving other consumers in those and non-legal states to source their cannabis from the illicit market. Furthermore, the medical markets are constrained by patients’ qualifying conditions,  geographical access, and generally limited consumer numbers in immature markets, among other factors. The next questions to ponder will surround what is to come of the supply if there is full federal legalization, and California’s supply hits an open market?

*New Frontier Data’s estimates assumed that the production was consumed either illicitly or legally, and did not consider any build for inventory-accumulation purposes. The estimates also considered cultivation for the purpose of extraction.