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Don’t delete your dealer’s number yet — legal cannabis shortage looms

Licensed cannabis producers have vaults of marijuana, stocked with thousands upon thousands of kilograms ready for Oct. 17, but industry analysts are already predicting all that pot won’t meet demand during the first year of legal recreational use.

“There is not currently enough legal supply of marijuana to actually supply all the recreational demand in Canada,” said economist Rosalie Wyonch of the C.D. Howe Institute, a public policy think-tank.

“We didn’t have enough producers far enough ahead from legalization that they’ll actually be able to deliver enough product to market by the time legalization happens.”

Wyonch has been tallying the inventory numbers licensed producers are required to provide to Health Canada, along with demand forecasts from Statistics Canada and the Parliamentary Budget Officer. She also reviewed the demand patterns in Colorado and Washington after those states legalized recreational cannabis use. 

“I don’t see empty shelves manifesting on the first day probably, and not the first month,” she said. “But as the year progresses, what we’ll see is either prices in the legal market will have to rise, or we’ll actually see the supply shortage.”

 

Economist Rosalie Wyonch of the C.D. Howe Institute has co-written a report about the size of the market for illegal cannabis. (Rob Krbavac/CBC News)

‘Great concern’

In Alberta, Angus Taylor has raced to prepare 17 retail outlets for NewLeaf Cannabis.

One of his downtown Calgary stores is totally ready — display cases are full of accessories like pipes, bongs and rolling papers while a sampling station that will allow consumers to smell various strains of products is fitted with specially designed containers.   

But Taylor has already heard about the coming shortage from a number of suppliers.

“I recently heard comments from some of the CEOs, saying that they don’t expect there to be enough product in the system, and that, of course, is of great concern to us.”

Like Wyonch, he thinks the shortage won’t happen right away.

“We’re concerned about the second or the third orders, when the storage facilities at the licensed producers start to get a bit bare.”

How much weed do we need?

Accurate numbers for supply and demand of cannabis are difficult to gauge. On the demand side, there’s no way to know for sure exactly how much cannabis Canadians typically consume on an annual basis; black market sales figures are by their nature sketchy at best.  

In August, Statistics Canada released a survey of cannabis users that provided information on which analysts could base demand estimates. It’s also possible to look at other legal marketplaces and extrapolate based on population. Canaccord Genuity, one of the most active investment firms in the cannabis business, estimates current annual Canadian demand is between 400,000 to 500,000 kilograms. Health Canada’s demand forecast is close to twice that at 926,000 kilograms.

As for supply, the industry’s most recent official inventory report covers the quarter that ended in June. It shows just 66,404 kilograms of dried cannabis for medical use on hand at that time.  There is no data available on what may have been stockpiled for recreational use.

Like many other licensed producers, Canopy Growth has a vault full of cannabis ready for Oct. 17 and beyond. (Keith Whelan/CBC News)

Speeding up production

Health Canada says production has been ramped up in a big way. Since July 2017, it has licensed 73 additional producers and more than 160 expansions of existing facilities have been approved. There are now at least 117 licensed producers, coast to coast.

In an email to CBC News, a spokesperson for Health Canada wrote: “Based on current inventory levels and growth in production capacity, the industry is well positioned to supply product as consumers transition to the legal market.”

But Wyonch of the C.D. Howe Institute insists there are bound to be shortfalls along the way.  

“At the end of the day, this is an agricultural product. It takes time to plant, grow, harvest and process, even after you’ve done all the regulatory requirements,” she pointed out.

She also said that the black market will be ready to fill any supply gaps.  

“As a country, we don’t have a shortage of marijuana; we have a shortage of legal marijuana.”

Black market to stay in business

The federal government has said one of the key reasons for the legalization of recreational cannabis use is to get rid of the black market. But it seems officials are aware that will take time.

In its statement to CBC, Health Canada acknowledged that “based on the experience in U.S. states … the displacement of the illegal market will follow a similar pattern of incremental growth over the first few years.”  

Angus Taylor shows off the empty shelves in the backroom of one of NewLeaf Cannabis’s new stores. (Colin Hall/CBC News)

Wyonch estimates Canadian producers will be able to supply one-third of what consumers will want in the first year: about 200,000 kilograms. That means local black market drug dealers aren’t going to see business dry up altogether overnight.

“Canada has a very prolific and highly functional black market,” Wyonch said.


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