Mismatch between supply and demand of recreational cannabis
It is difficult to understand how, after so long since the legalization of recreational cannabis, the Canadian government is unable to adjust supply to demand
Cannabis shortage in Canada. Federal-provincial fight over cannabis began again last week. Ontario Finance Minister Vic Fedeli was complaining of the national cannabis shortages. In the mean time, federal Border Security Minister Bill Blair, keeps saying that it is not true. But Ottawa’s own data support Mr. Fedeli, although it has been recognized that the situation is improving.
However, Ontario is clearly suffering a shortage of cannabis few months after legalization. This happens because only 25 stores are being licensed in Ontario and each one can get only 25 kilograms of cannabis per week. It is not enough.
Statistics Canada data show that only 20% of the cannabis consumed in the country is legal. In fact, Canada Border Services Agency says that the shortage of the legal cannabis is the main cause of illegal imports.
Despite all that, Health Canada keeps denying shortages in the country. In fact it tweets about the increase of cannabis production.
Mr. Blair, minister for Cannabis Act implementation, says the same: cannabis supplies are exceeding the demand. But Mr. Fedeli disagrees. His budget on Apr. 11 is the cause of the national shortage and he said that the Ottawa’s cannabis rollout was a big mistake that is affecting the business. And he is right; Health Canada’s own data shows a great cannabis shortage.
Recreational and medical cannabis sales decreased up to 9 per cent, reaching up to 6,671 kg during the last February. The amount of cannabis oil declined to 13,753 liters. This was not worrisome because in January the amount of processed cannabis oil was quite high and the distributors remained correctly supplied.
Dry cannabis flower sales fell down 9 per cent with a production of 6,671 kg. It is true that the daily sales were constant. But the lack of growth is a problem because recreational users prefer dry flowers.
However, dry flower product processing went up to 16 per cent reaching a production of 10,249 kg. This increase allowed the continuity of sales growth.
Luckily, the dry flower processing grew 16 per cent to 10,249 kg. to 10,249 kg. It has been the second monthly increase after the tremendous December’s decrease.
The sales in March reached around 7,900 liters and dry sales above 8,000 kg, which has pushed the month’s retail recreational sales to $60-million.
Anyway, the shortages keep being important. Health Canada has estimated the demand in about 77,000 kg monthly. Between November and February the sales of dry flowers and oil have covered one-fifth of it.
Nonetheless, shortages remain substantial. Health Canada’s demand estimate works out to about 77,000 kg monthly. From November to February, dry flower and oil sales together have covered just one-fifth of that. The implied consumer-level monthly shortage has been roughly 62,000 kg. The monthly shortage for consumers has been of 62,000 kg.
In the mean time, the rates of finished processing goods have been around one-third of consumers demand. Therefore, from the processors point of view, monthly shortages have been around 53,000 kg.
In other words, Mr. Fedeli was right when he complained about shortages. But it must be said that all the shortages are not Ottawa’s fault. Reports from the media suggest operative troubles among producers.
The great mistake of the government has been to deny the existence of shortages. Mr. Blair keeps talking about enough supplies which is not true. Health Canada warns that the inventory ratios seem great but mean nothing.
Among consumers, retailers and investors the question remains the same. When will supplies improve?
On the other hand, Health Minister Ginette Petitpas Taylor must clarify the situation. The department she directs should inform about the industry’s monthly harvesting and processing figures. Being clearer about it, would help everyone to rapidly know if the output is increasing or not.
Retailers have to fight against the black market. Illegal dry flowers used to cost $6.79 a gram before legalization. After legalization the price went down to $6.51 in late 2018 and $6.28 in early 2019.
However, the legal recreational marijuana went from $9.89 to $10.52.in the same period. And current Ontario’s online prices can reach up to $12.34.
As long as demand does not match the offer, illegal cannabis will continue to be present on the streets of Canada.