Depending on whom you speak to, the legalization of adult-use marijuana in Canada is going to cause a great cannabis shortage or it will bring about an oversupply with products rotting away on the shelves. Both scenarios bring their own share of headaches for consumers or suppliers.
On the scarcity side, Mackie Research Capital said last year that the total demand for marijuana in 2018 would be 795,000 kilograms. But they forecast that licensed producers (LPs) would end 2017 with production capacity of a little over 100,000 kg annually.
Analyst Greg McLeish wrote in a report: “[This] will not nearly be enough to fulfill near-term demand.”
And more recently, Alan Brochstein, cannabis analyst with 420 Investor, warned in a May 2018 column that a sluggish-to-start distribution network could combine with a limited inventory, leading to a “large initial imbalance between supply and demand.”
“If one assumes the demand among 6% of the population to be one gram per day, another 6% consumes five grams per month and 15% consume just a gram per month, the annual demand based on 36 million residents would amount to 982 million grams in a mature market,” he wrote.
Boosting the Marijuana Black Market
One of the unintended consequences of a supply shortage after legalization is that the black market for marijuana may get a boost, instead of being diminished by a lawful cannabis market—one of the government’s goals.
If consumers can’t get what they want from legal channels, they’ll return to the illicit suppliers who once furnished the market exclusively.
As an interesting side note, some experts feel that the strict packaging regulations for legal cannabis—in essence, forcing different types of cannabis into generic packages—may contribute to this process. Because LPs won’t really be able to brand or distinguish their lines of products, they won’t connect with consumers, who may prefer illegal sources because they’re exciting and different.
“[We need to] be able to communicate with our adult consumers who are consuming cannabis today and tell them about the strains, the product and the history,” says Allan Rewak, acting executive director of the Cannabis Canada Association. “The packaging regulations that are proposed are a little bit too prescriptive to allow that.”
A Medical Marijuana Shortage?
However, medical marijuana patients may face an even greater danger from shortages, as cannabis producers switch their focus to the booming recreational market, leaving people with dependent medical conditions high and dry.
In fact, shortages are already happening. Last year, the CBC reported on challenges faced by medical marijuana patients like Alexis Brenner who uses cannabidiol (CBD) to help manage chronic pain from endometriosis and fibromyalgia.
“After using [CBD] for a few months, I went to go buy some more, and they were out,” she recalls. “And when I called to ask them when it was going to be back, they said, ‘We won't have it for another six weeks, and when it does come back I suggest you buy a few bottles, because we do not know how the supply is going to be.’”
Already, medical marijuana consumers who’ve been denied a legal product have turned to the illicit market for help.
Perhaps We Have More than Enough Cannabis
On the flip side of the coin, a December 2017 story in Vice Money claims: “There will be no shortage of cannabis on the market . . . when the drug officially becomes legal in Canada, according to an unpublished analysis commissioned by Health Canada that refutes widely held claims that the demand for recreational cannabis will greatly outstrip the supply.”
Miles Light, co-founder of the Denver-based Marijuana Policy Group (MPG), which provides cannabis-specific policy advice to the private sector and governments, insists that an acute shortage is very unlikely.
Health Canada hired his group to examine who’s positioned to meet supply demands after legalization. MPG’s report concludes that existing LPs can meet demand, and this doesn’t even take into account new applicants who may be brought into the equation.
The Risks of Too Much Marijuana
Having an abundant supply of legal cannabis can also create problems in Canada. We only have to look at the experience of Oregon in the U.S. This American state has allowed sales of cannabis to recreational users from dispensaries since Oct. 1, 2015.
A CBC news story reports that “marijuana farmers in Oregon say a flood of supply is killing their businesses less than three years after recreational cannabis was legalized,” and that Canadian producers better take heed.
There are nearly 450,000 kg of usable cannabis flower in the system in Oregon, and an additional 159,000 kg of marijuana extracts, edibles and tinctures. The retail price for a gram of marijuana has been halved since 2015, dropping from $14 to $7.
“There is no reason to think it won't happen here as well,” says Stephen Easton, professor of economics at Simon Fraser University and senior fellow at the Fraser Institute.
So, whether there will be too much cannabis hurting LPs or too little hurting consumers remains an open question. We’ll just have to wait until October to see what happens.
Photo credit: Ndispensable