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Canada is Having a Weed Shortage Crisis

Jun 27, 2017 • 5:37 PM EDT
Canopy Growth (2).png
3 MIN READ  •  By Michael Berger
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Derek Thomas – Political Analyst

The legal medical marijuana industry in Canada is facing a surprising problem: a shortage of weed. Charles Sousa, finance minister of Ontario – Canada’s largest province, discussed the issue during a meeting with other provincial and federal counterparties this past week. Considering Canada is on track to make marijuana recreationally legal later this year, the problem is likely to get worse before it gets any better.

Perhaps even more troubling; one analyst expressed concerns that the government may use a supply shortage as an excuse to delay rolling out the program.

Canada would be the first major economy in the world to legalize marijuana.

Mr. Sousa, in an interview earlier this week, went on to say “Ultimately, the biggest problem that appears after today’s discussion is one of supply. Demand is quite high already, so we want to make certain that, when we do proceed, there is sufficient supply to accommodate the activity because what we’re trying to do is curb the illicit use and organized crime that now exists around it.”

Canada’s framework for legalization, unveiled in April by President Justin Trudeau, is structured to rely on Canada’s provinces to set up sale and distribution infrastructure. The first benchmark date of the legislation is to begin recreational pot by mail sometime before July 2018. Can someone have some sent to Jeff Sessions home?

Canada’s fledgling cannabis industry has exploded in value amidst the optimism over Trudeau’s plan for recreational sales. A report by Canaccord Genuity Group Inc. estimated the market could reach C$6 billion ($4.5 billion) annually by 2021. The combined demand for recreational and medical cannabis could hit 575,000 kilograms by that same year, according to the report.

With a key government goal to shrink or and eventually end the black market, any supply shortage of marijuana would hinder that effort. The legislation also allows people to grow up to four plants in their home.

Companies that are already up and running are scrambling trying to build and expand their facilities. PI Financial analyst Jason Zandberg says that at this rate, everything would have to go perfectly in order to meet the expected upcoming supply. Sales will probably be online and by mail as it won’t be possible for the market to stock sufficient inventory in government dispensaries around the country for the first few months of legalization.

Growing patient lists are already creating a shortage in the country’s medical marijuana market as producers stop taking new patients or sell out of certain strains, Zandberg said.

As of March 31, Canada had 167,754 registered medicinal marijuana users – triple the amount from a year earlier. When you consider the country has a total population of 35.85 million, if the rate increases at this pace (which is unlikely considering the flood expected during recreational legalization) you can see just how severe a supply glut might be.

The government has been taking some proactive steps to alleviate the issue. Last month, Health Canada to approve new applicants seeking a license to grow marijuana at a faster pace. While the agency has been more responsive, it can still take up to a year for a new producer to begin production and get product to market.

Production cycles have to be considered as well. Even if all those new licenses were issued immediately and infrastructure was in place, plants still need to grow. They need to be harvested and trimmed and tested and brought to market. There is little doubt as to whether or not a lack of supply will happen. But how severe will it be?

The question as of now seems to be, on the day marijuana becomes legal, will millions of Canadians jump online and order marijuana to be delivered? Or, more likely, will they be forced to pick up the phone, call their dealer, and order their marijuana the old fashion illegal way?

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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