Although Canopy Growth Corporation’s (Nasdaq: CGC) (TSX: WEED) uglier-than-expected quarterly earnings report captured most of the media’s attention last week, we believe Health Canada’s data (according to MJBizDaily) on the amount of cannabis that is being destroyed by Canadian cultivators was the most interesting development.

Based on the data from Health Canada, federally licensed cannabis producers destroyed 425 million grams of unsold dried cannabis last year. This amount is a record for Canada’s flailing cannabis industry and leads us to believe that some of the largest operators are still facing significant headwinds.

If Canadian Licensed Producers (LPs) are unable to produce the products most in demand by consumers, they are going to need to find another way to sell the cannabis. We believe the current trend of destroying mass quantities of unsold or unpackaged cannabis is unsustainable and consider the risk to be a major concern for any operator.

When comparing the number of grams of unsold or unpackaged cannabis that were destroyed in 2022 to the prior two years, the increase is staggering. In 2019, approx. 155 million grams of unsold or unpackaged cannabis were destroyed. In 2020, the number of grams destroyed increased to approx. 280 million. Three other statistics we are concerned about are:

In 2021, more cannabis was destroyed than sold in Canada – Based on data from Seattle-based analytics firm Headset, MJBizDaily determined that approx. 293 million grams of dried cannabis and pre-rolls sold in four key provinces in 2021.
The percentage of cannabis that ends up being destroyed has increased every year. From 11% in 2018 to 15% in 2019 to 19% in 2020 to 26% in 2021.
According to data from Health Canada, MJBizDaily learned that more than 7 million packaged cannabis products were sent for destruction in 2021. When you combine the cost of the cannabis product with the cost to package the product, the amount of missed revenue is substantial

During the last year, the Canadian cannabis industry has been under considerable pressure and we believe the next few quarters are pivotal for the viability of the sector. After Canopy Growth plunged on earnings, we ae most focused on operators who have enough cash on hand to weather the current storm.

If you are interested in learning more about Canadian cannabis companies that are at risk, please send an email to support@technical420.com with the subject “Canadian Cannabis Operators at Risk” to be added to our distribution list.

Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.