Commercial Property Prices Jump, Cannabis Sales Rise As Losses Grow, More Summer Port Shipments Expe
Commercial Property Prices Jump
The Federal Reserve's latest analysis of potential risks to the U.S. financial system found the value of the nation's commercial real estate grew 12.7% to $48.8 trillion at the end of 2021, surpassing the average 7.2% increase between 1997 and 2021. But the Fed said it doesn't see the trend as a significant sign of pending economic instability.
Monday's 86-page Financial Stability Report, issued issued in May and November, said banks are still reporting strong demand for commercial real estate loans.
It did note, however, that house prices continued to rise at a rapid pace that further outstripped rent growth, and those prices could be “particularly sensitive” to any future economic shocks.
“Nonetheless, little evidence to date exists of an erosion in mortgage underwriting standards or a surge in speculative practices, suggesting that while a negative shock to house prices may hurt homeowners, such a shock is unlikely to be amplified by the financial system,” the report said.
Cannabis Sales Rise But Losses Widen
While legal cannabis sales have exploded in the U.S. over the past decade as more states legalize retail transactions for medical and recreational use, profits remain elusive for at least a couple of cannabis retail chains.
Curaleaf Holdings, among the largest with more than 131 dispensaries and 26 cultivation sites in 22 states, this week reported that its first quarter sales rose 20% from the year-earlier quarter to $313 million. But it still posted a net loss $20 million for the quarter, wider than the $14.8 million net loss a year earlier.
Despite industry headwinds including rising labor and distribution costs, Curaleaf Executive Chairman Boris Jordan said in a statement that the Wakefield, Massachusetts-based company is counting on its national footprint and steady monthly customer growth to fuel between $1.4 billion and $1.5 billion in sales for the full year 2022.
The story was similar this week for Los Angeles-based MedMen Enterprises, which operates 34 stores in seven states and reported first-quarter revenue rising 10% from a year earlier to $35.2 million. Its net loss was $29.7 million, deeper than its $13.7 net loss in the year-earlier quarter.
Similar to actions taken by other retailers, MedMen noted in a regulatory filing that it moved to close a Los Angeles distribution facility and have inventory drop-shipped directly to stores by suppliers, part of “our strategic focus to reduce overhead costs and shift toward an asset-light operating model.”
Industry data shows U.S. cannabis retail sales reached nearly $28 billion in 2021, up 6% from the prior year, as 37 states have legalized marijuana sales for medical use and 15 legalized recreational sales. Local jurisdictions often impose tight restrictions on when and where cannabis can be sold, however, and those sales remain illegal under federal law, keeping retailers’ cash processing and security costs high.
More Summer Port Shipments Expected
Retailers are expecting a summer burst in deliveries at major U.S. ports.
The National Retail Federation trade group is forecasting a rise in retail container shipments with improvements in supply chains long disrupted by the pandemic.
The monthly Global Port Tracker, prepared by the trade group and consulting firm Hackett Associates, predicts a 6.6% year-over-year rise in June for the number of 20-foot container imports to be processed by ports.
The forecast calls for a 5.3% increase in July and a slighter 0.9% rise in August. Ports handled 2.34 million containers in March, the latest month for which full data is available, up 10.8% from February and up 3.2% from March 2021.
“Retailers are importing record amounts of merchandise to meet consumer demand, but they also have an incentive to stock up before inflation can drive costs higher,” federation Vice President Jonathan Gold said in a statement. “Whether it’s freight costs or the wholesale cost of merchandise, money retailers save is money that can be used to hold down prices for their customers during a time of inflation.”