While more than 40 countries permit cannabis for medical purposes, only two allow it recreationally. Uruguay made this change way back in 2013. Canada took the same step at the end of 2018. Now that it’s legal in Canada, there is, of course, a cannabis shortage.
National Access Cannabis Corp (NAC) is Canada’s largest private cannabis retailer, with 17 stores. It’s painfully aware of the cannabis shortage. So it has five people who are on the lookout 24/7 for new inventory from Alberta’s regulator, which controls cannabis distribution. Mark Goliger, NAC’s CEO, recently conducted a phone interview. He declared that if CAD4,000 of inventory became available at 3:30 in the morning, it would all disappear within seven minutes. Alberta has temporarily ceased to issue new retail licences due to lack of product.
So why is there a cannabis shortage?
And why is Canada experiencing a cannabis shortage? Firstly, Health Canada set out a long list of requirements for the packaging of cannabis. It has to be tamper- and childproof, bear warning labels and not appeal to adolescents. The warning labels used to present a problem, being a compulsory excise stamp obtained from the Canada Revenue Agency. There was a requirement to glue one to every product, but they came without glue. That’s now behind us.
Secondly, constructing greenhouses can be most expensive. Cannabis growers were unwilling to devote capital to projects until such time as they were absolutely positive the Cannabis Act would pass, which it now has.
Thirdly, Health Canada oversees a humungous backlog – over 800 – of applications to cultivate, process and sell cannabis. It takes many months to complete an application to cultivate and almost a year – as much as 341 days – for an application to sell.
In May 2019, Health Canada announced that it would only accept applications to cultivate from parties that had completed their greenhouses. Per Health Canada, over 70 percent of applications used to have no greenhouse behind them. Small-scale growers are somewhat disadvantaged. If you have to have a growing facility before you apply for a licence, you’ll need wads of cash. It’ll be rich companies that do it and seize market share.
Why not just buy it from the United States?
It would be possible to alleviate Canada’s cannabis shortage just be buying from the United States. The problem is that although 10 of the United States have legalised cannabis recreationally, none permit its shipment across state lines, never mind internationally. Efforts are afoot to rectify this.
How long will a solution take?
Edible cannabis is inchoate. By way of example, the makers of Corona beer and Kim Crawford wines united with Canopy Growth to produce cannabis-infused beer and wine. This will open up a whole new market segment: Deloitte recently found that 49 percent of probable cannabis users were willing to try edibles. Kevin Letun of Pacific Rim Brands believes that in the next 10 years, smokeable cannabis will constitute “maybe only 10 to 20 percent of the market.” Chuck Rifici, CEO of Auxly, a Toronto-based cannabis company, thinks that with the arrival of edibles, “[I[t’ll be the better part of three years before we have true equilibrium and oversupply in the space.”
So there are some who worry that Canada’s cannabis shortage will last for years. Michael Armstrong, a professor at Ontario’s Brock University, isn’t one. He notes that legal production of cannabis began to increase rapidly around six months prior to legalisation. “Not only were they adding more to inventories each month, the amount they were adding was greater each month. If that continues, supply should catch up to demand by the end of this year.”
Initially, Rosealie Wyonch, an economist for the economic policy thinktank the CD Howe Institute, had her fears. Now, however, she echoes Armstrong: “[T]he number of new producers and inventory have all increased faster than I expected. If they maintain the current pace of expansion, it is highly likely there will be enough supply to satisfy demand in all of Canada very soon.”
The industry has been transformed. Previously, it was medical, so there’s been a change from sending teeny packages of cannabis by Canada Post to delivering truckloads of the stuff. Armstrong is now of the opinion: “I’m pretty sure this will all eventually get resolved.”