Canadian Cannabis Shortage A Real Possibility

Canadian Cannabis Shortage A Real Possibility

During the 2015 election campaign, Canadian Prime Minister Justin Trudeau’s Liberal Party pledged to “legalise, regulate, and restrict access” to marijuana in order to keep drugs "out of the hands of children, and the profits out of the hands of criminals." Trudeau followed through on that promise in April, introducing legislation to open up Canadian cannabis laws, legalizing the retail marijuana market by 2018.

The legislation, which closely follows recommendations laid out in a federal task force report late last year, would allow anyone over the age of 18 to carry up to 30 grams of dried or fresh marijuana, and let consumers buy or grow as many as four marijuana plants at home. Canada’s provinces will take the lead on controlling the price, as well as setting up sales, distribution, and enforcement systems. Other items, like taxation, have yet to be determined. Also unclear is where all the pot is going to come from.

While Trudeau is aiming for the legislation to take effect by this time next year, there might not be a big enough supply of Canadian cannabis to meet demand.

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A cannabis shortage?

According to Health Canada, the number of Canadians registered to use medical marijuana rose to almost 130,000 in March of this year — double what it was just a year ago — and that number continues to increase every month. The medical marijuana market is growing so quickly, in part because more insurance companies are now covering the drug, says Greg Engel, chief executive officer of Organigram Holdings Inc., one of Canada’s few large marijuana producers.

Engel says Organigram and the country’s other leading producers are already struggling to keep up with the existing demand for medical marijuana, and will have an even tougher time keeping up when the adult recreation market starts next summer.

“There are the top six or seven companies, that we’re one of, that are doubling, tripling, if not quadrupling production,” he says. “But there’s new companies coming into the space as well, in anticipation. The challenge is they may not be ready when the market starts.”

Potential fixes to a possible canna-shortage

Health Canada pledged last month to speed up its approval process for applicants seeking a license to grow marijuana. And while the agency has sped up approvals, it still takes up to a year for a new producer to ramp up production and reach the marketplace, says Cam Mingay, a senior partner at Cassels Brock who follows the marijuana industry.

“I don’t know what anyone can do about it — you can’t force the plants to grow faster,” he said, adding that any companies whose licenses are approved likely couldn’t be in production “in any meaningful capacity” until the end of 2018.

Back in April, federal ministers reiterated that the ultimate goal of the legalization is to shrink or kill completely the black market for marijuana. If demand for legal pot continues to outpace production, however, or if the tax incentives are unbalanced, the black market could take over Canada’s marijuana trade — regardless of the legislation.

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Worst case shortage scenario

According to Jason Zandberg, an analyst at PI Financial, companies are still trying to ramp up their facilities and production, and initial sales will likely take place online and by mail, as it wouldn’t be possible for producers to stock all of the government dispensaries across Canada. Zandberg says everything would have to go “perfectly” for producers to meet the projected demand — something that is not likely to happen.

“There will be a shortage initially,” he says. “My concerns are that if that is used as an excuse to push the date of recreational legalization back, there’s a danger that it slips into the next election cycle and doesn’t actually happen.”

Let’s hope the Canadian cannabis shortage only lasts a short time.