this staff works well for a druids who loves to sleep in trees "tree form"

"pass without trace" is handy in most sneaky things. 

if you cast "Awaken" with the staff do you need the 1,000 gp gemstone for each casting? if not can you just make an army of trees to take over the world?

No, spells from items do not require their material components unless otherwise stated. Furthermore, it doesn't take the usual 8 hours to cast the awaken spell from the staff only 1 action, as it states "you can use an action... to cast one of the following spells." Many magic items circumvent the normal casting time for spells, such as the Staff of the Magi and the conjure elemental spell.

Would a level 2 druid having this be too powerful for them to use?

In my opinion, and in my campaigns - yes, it would be too powerful. I wouldn't look at rare items until at least level 9 to 10. The staff allows access to 5th and 6th level spells, which are way out of range for a level 2 druid. It might eliminate the sweet feeling of exciting when gaining levels and getting close to those components of the class. Mechanically, it would also make a level 2 druid way overshadow other party members in many terms, unless they are presented with items of equal power and rarity. But presenting an entire party with items that powerful and out of their reach will require a lot of extra effort for the DM to create challenging encounters (combat and otherwise), that keep the players engaged.

That said, the beauty of D&D and role-playing games in general is that you get to craft your own game experience. If your players don't feel envy for the druid, and if your encounters are still interesting for the party, then why not award a staff like that. But it will take a toll on the DM to run a good game.

Edit: If you are after just one or few of the specific lower-level effects of the staff, you can consider removing the ability to cast the spells that are higher than 2nd level, and potentially reducing the charges to 6 (1d4 +2 restored daily). It will be more level appropriate. It would leave the staff without direct much combat benefits, but it can still be a powerful tool in social situations or exploration.

Is it me or is this staff far better than other rare quality staves? Same number of charges but has additional bonus to the quarterstaff attacks and to spell attack rolls, a larger selection of spells, at will 2nd level spell that would sees fairly common use and finally the ability to transform into a 60 foot tree whenever the conditions are right.

I suppose it's very good for a rare but just not quite good enough to be very rare, like a staff of fire or staff of frost?

You seem pretty well versed what items would you recommend for a party of level 4-5

a Druid (forest)

a sorcerer (kind of a necromancer)

a bard (who plays the kazoo lol)

wizard

and arcane trickster 

I thought about giving the rouge a key that cast knock on use they like stealing  

Quote from Darkauragamer >>

Would a level 2 druid having this be too powerful for them to use?

 Probably.

Would the Druid need to provide the "agate worth at least 1,000 gp" for the awaken spell?

For the other spells I am assuming that the staff works as a focus.

Are all spells cast through items cast at the base spell level, or can they be upcast?

From the Basic Rules Page

Spells

Some magic items allow the user to cast a spell from the item. The spell is cast at the lowest possible spell level, doesn't expend any of the user's spell slots, and requires no components, unless the item's description says otherwise. The spell uses its normal casting time, range, and duration, and the user of the item must concentrate if the spell requires concentration. Many items, such as potions, bypass the casting of a spell and confer the spell's effects, with their usual duration. Certain items make exceptions to these rules, changing the casting time, duration, or other parts of a spell.

Guess I breezed right past that.... thanks DasanRavi

Awarded this staff to my daughter's Level 4 Forest Gnome Druid, and she loved it. Made gameplay really fun and freed up prepared spell slots for her to be more versatile in combat while still being able to do cool non-combat druid things like talk to animals and awaken trees. She liked it so much that she found a big branch with a similar shape while hiking and kept it for some good 'ol LARPing, haha.

Terrific, unique item. It's great when you can find useful magic items that aren't too weak or too powerful and contribute meaningfully to your campaigns.

ah but what happens if you cast awaken on the staff while it is in tree form?

Brand new sentient magic item. 

let it grow maybe even gain new spells an abilities. Use it as a plot point.

ah and we have the sidekick rule just in time

ok now im 100% giving my druid player this and hoping it happens. (once they get to the right level) 

Certainly. This, in my opinion, should be a very rare or legendary item. Of course, it is your game and your choice. But, if you put this staff in the hands of a druid in your party, prepare for them to overpower the rest.

As someone playing a level 5 druid with one of these. Yes it is way too OP for that level, even my level of 5 and now 6 it is considerably over powered. Limitless pass without a trace and then ambushing an encounter with wall of thorns has brought a quick end to most of our encounters. 

Quote from Darkauragamer >>

Would a level 2 druid having this be too powerful for them to use?

 Our dm would allow us to have things like this at lower lvl but wouldn’t allow us to cast spells higher than the lvl we can currently cast at making it a little less powerful and allowing it to lvl up with us and free up spell slots for us