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sept-oct-2010

sept-oct-2010

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Published by Steep Hill Lab

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Published by: Steep Hill Lab on Sep 27, 2010
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P
UBLISHED BY
S
TEEP
H
ILL LAB INC
.
 
O
 AKLAND
,
 
C
 ALIFORNIA 
www.steephilllab.com
Cannabis Industry Report 
 An Historical Look at The Cost of Cannabis in California
The Price of Compassion
 
CANNABIS INDUSTRY REPORT
SEPTEMBER/OCTOBER 2010
0.002.004.006.008.0010.0012.0014.0016.0018.00Potency < 10%Total THC 10 - 15%Total THC >15%
“Often the difference between a successful personand a failure is not that one has better abilities or ideas,but the courage that one has to bet on one`s ideas, to take acalculated risk - and to act.” -Andre Malraux
The cannabis sector is growing disproportionatelyrelative to the rest of the US economy. While un-employment and consumer confidence are sinking, thecannabis industry is creating jobs every day, consumptionis increasing, and planned expenditures are up. There islimited data to support these claims, but between playerscurrently participating in the cannabis market it isindisputable that the industry is profitable, growing and yetstill immature. The creation of an industry report is key tounderstanding the implications of the economic landscapein this fledgling industry. Even without statistics definingmarket fundamentals, many politicians acknowledge theopportunity for governments to cash in on cannabis money.This opinion is regularly touted by state senators who haveendorsed and campaigned for California’s Proposition 19 totax and legalize recreational cannabis. Whether or not Prop19 passes is immaterial to the fact that there is a widespread understanding that the cannabis sector is ripe for entrepreneurship and innovative risk taking.Innovation in the cannabis sector has barely begun.Businesses, which do not produce or distribute cannabis, but instead support the structural needs of the industry, suchas financial services, supply management, packaging, andsoftware are only adding to the landscape of the industry. Itis here where the future lies.Historically, your average entrepreneur or venturecapitalist would jump at the opportunity to break into anundeveloped market because they will have fewcompetitors and great potential for profitability. Thecannabis industry differs by seemingly not following theformula for emerging industries. Investors coming fromoutside the cannabis industry are begging for laws toregulate and define the legal scope of cannabis industry business practices. Some are afraid to invest in an industrythat is too legally risky, or prone to sweeping structuralchanges. The emergence of the cannabis industry isfascinating because it has grown without regulations andscope. Accountants are not certain how to structurecannabis businesses, lawyers are in disagreement over whatis and is not legal, and sector participants are largelyinexperienced business people.Who are the leaders working in the cannabis industrytoday? They are people not afraid to put a lot on the line toget their foot in the door now. The leaders and entre- preneurs of cannabis business are risk takers from the oldindustry. They are accustomed to high risk business, oftenhaving been growers and distributors. They believe thatwhen the industry inevitably changes they will be positioned to define it. The smart ones are probably right.--
 AnnaRae Grabstein
 Average % THC potency of all lab samples tested at SteepHill Lab within range listed below bars. Average retail price of all lab samples tested at Steep HillLab within range listed below bars. Prices use axis at left inUS Dollars. Prices are calculated using 1/8th ounce pricebroken down to a per gram price.
Cannabis Entrepreneurship
ISSUE CONTENTS
2.1WHOLESALE PRICES
Wholesale prices of cannabis inCalifornia going back to 2004.
The Steep Hill Report aims to play a leading role in advancing formal analysis of the cannabis economy.
 
This 
 
work in progress will look at the most important growth drivers in the current U.S.cannabis economy, starting with an analysis of California 
ʼ   
s market.
 
We hope to inspire dialogue and offer insight.Reach us at industryreport@steephilllab.com 
 
3.1CANNABIS INDUSTRY MAP
Where does the money flow in thecannabis industry? This chart startsto paint the picture of the industryas a whole.
Total THC <10% Total THC 10%-15% Total THC >15%
 
P
UBLISHED BY
S
TEEP
H
ILL LAB INC
.
 
O
 AKLAND
,
 
C
 ALIFORNIA 
www.steephilllab.com
 
CANNABIS INDUSTRY REPORT
SEPTEMBER/OCTOBER 2010
$2,500.00$3,000.00$3,500.00Northern California - Outdoor - Wholesale - High Grade
*Estimated price index is based on a survey of growers, brokers and dispensaries. Data from 2004-2010 is largely anecdotal, butrepresents expert industry opinion from market participants during this period. High grade includes top shelf. but also one notchbelow. Low grade is very poor quality, but not the poorest. If cannabis were graded A-B-C-D, low grade would be C. D gradewould encompasses anything below typical salable grade in California.
Regional Wholesale Prices for Medical Cannabis 2004-2010
Wholesale medical cannabis prices have varied dramatically from year to year. The prices reflectedin the following graphs are for one or two pound lots.
$2,900.00$3,400.00$3,900.00Southern California - Outdoor - Wholesale - High Grade"
$1,200.00$1,700.00$2,200.00$2,700.00Northern California - Outdoor - Wholesale - Low Grade
$4,200.00$4,700.00$5,200.00$5,700.00$6,200.00
   W   i   n   t   e   r   0   6   S   p   r   i   n   g   0   7   S   u   m   m   e   r   0   7   F   a    l    l   0   7   W   i   n   t   e   r   0   7   S   p   r   i   n   g   0   8   S   u   m   m   e   r   0   8   F   a    l    l   0   8   W   i   n   t   e   r   0   8   S   p   r   i   n   g   0   9   S   u   m   m   e   r   0   9   F   a    l    l   0   9   W   i   n   t   e   r   0   9   S   p   r   i   n   g   1   0   S   u   m   m   e   r   1   0
Southern California - Indoor - Wholesale - High Grade"
$2,500.00$3,000.00$3,500.00$4,000.00Average Price - All California - Outdoor - High Grade
California's North Coast was subjected to anunseasonable early rain storm during the weekend of September 17th - 19th. Rainfall amounts were highest inthe north’s Del Norte County, which saw localizedamounts of 2" or more. Humboldt County received between 1"-2", while Mendocino County came in on thelighter side with .25"-1". Early rains have a significantimpact on the outdoor market. Expect higher incidencesof mold contamination in the cannabis supply from thisregion. In addition, flower coloration is impacted by theincreased moisture and cold temperatures that accompanya weather event of this magnitude.The low and mid grade outdoor markets, which werealready poised to experience significant challenges thisfall, will be even more hard pressed to recover from thecrash level price declines experienced over the last severalyears. Many buds that might have otherwise ranked ashigh grade outdoor will slip into the middle and lowgrades. The bottom has fallen out for the low grademarket, and further price declines should be expected.The National Climate Prediction Center is calling fo below normal precipitation through mid October, withtemperatures expected to trend below normal. A series of strong storms are expected to dip into British Columbia, bringing colder temperatures to the region, with a slightchance of precipitation for the northernmost regions over the course of the next month.Dryer weather coupled with cooler temperatures is nota worse case scenario for the region. Plant phosphorousuptake is reduced by cooler temps leading to a darker overall appearance in the buds. This results in a morelimited marketability, but does not necessarily impact potency and flavor.Farms that have taken the appropriate precautions tolimit Fall time weather impacts will find that the effort will pay off this season. -
 David Lampach
Expect North Coast Outdoor Quality Declines Due to September Rains
$3,500.00$4,000.00$4,500.00$5,000.00Northern California - Indoor- High Grade - Wholesale
 
P
UBLISHED BY
S
TEEP
H
ILL LAB INC
.
 
O
 AKLAND
,
 
C
 ALIFORNIA 
www.steephilllab.com
 
CANNABIS INDUSTRY REPORT
SEPTEMBER/OCTOBER 2010
Gray arrows show thedirectional movementof money within theindustryBlack arrows show thedirectional movementof cannabis within theindustry
CANNABIS INDUSTRY MAP
Where does the money flow in the cannabis industry? This chart illustrates the flow of the cannabis industry as awhole. To chart the journey of cannabis from plant to patient, a picture emerges of a rapidly growing industry with anexpanding base infrastructure.The chart is not drawn to scale, and does not reflect the relative sizes of each sector in the industry. Growers anddispensaries are by far the largest sectors in terms of revenues, but edibles, financial services, and lab testing are growingrapidly. Increased mainstream acceptance is already changing the interaction of cannabis industry businesses to the broaderbusiness world. With an improving legal framework, we expect the legal services sector to transition away from criminaldefense and become dominated by more traditional business legal services. This is a trend that seems to have acceleratedin the last several years. Expect it to continue as other sectors such as insurance and technology tune in.
Possible Industry Impacts if Proposition19 Passes1- Shrinking of doctors’ sector. It seemsfeasible that if patients can get theircannabis without a doctor’srecommendation, they will do so.2- Reduction of cannabis price overall.While this seems inevitable, Prop. 19passing or not, the passing could speedup the process. Low income patientswho cannot afford recommendationswould be able to utilize localdispensaries. The increased demandwould be met with increased supply andincreased competition from dispensaries.This is a recipe for lower prices on theretail side.3- Increased effort from outdoorgrowers to market their products.Outdoor cannabis is far cheaper toproduce than indoor. With more pricedeclines, outdoor cannabis becomesmore competitive. Technologicaladvances in outdoor growing are alreadyclosing the gap between indoor and high-end outdoor quality cannabis. Withmarketing, consumers may begin tomigrate back to outdoor cannabis.4- Expansion of capital investment fromother industries. Investors are waitingfor legalization. Hundreds of millions of dollars will flow into the industry overthe next five years.

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