A new report suggests demand will outstrip cannabis supply by a wide margin in the fourth quarter.

Cannabis Supply May Fall Short Due To Licencing Snags

With the recreational cannabis legalization date less than a week away, dispensaries and other retail suppliers are preparing their barcode labels so sales activity can begin without a hitch. But as store operations stock up with various product offerings, a newly released study suggests that they won't be able to meet buyers' intense demand. 

According to a report obtained by The Canadian Press from the public policy think tank C.D. Howe Institute, demand for recreational marijuana is forecast to top 610 tonnes across Canada. Given that production levels in the fourth quarter are expected to hover in the 146 ton range, suppliers will be well short of the amounts buyers are looking to purchase.

Licencing Taking Longer than Expected

What's the hold up? The study's authors say it largely has to do with the slow rate of licencing producers.

"The important policy conclusion is that there will not be enough legal supply, especially during the first half of the year following legalization, primarily because of the slow rate of licencing producers," wrote University of Waterloo economics professor Anindya Sen and C.D. Howe Institute and C.D. Howe Institute policy analyst Rosalie Wyonch.

More specifically, the report concluded that 97 producers will have the proper accreditation in the fourth quarter, according to The Canadian Press. While that's more than double the amount in the first quarter, which at the time was 45, it's behind the pace needed to reach 144 during next year's penultimate quarter.

Supply Chain Guessing Game

Suppliers are ultimately in the midst of a guessing game when it comes to settling on what amounts of cannabis to have on hand for customers – and if their projected volume will be on target. As reported by the Ottawa Citizen in August, producers in Canada will be able to make 1.8 million kilograms of marijuana available for buyers come 2020. But by 2021, demand is expected to top out at 734,000 kilograms, based upon estimates from the Parliamentary Budget Office.

In the early going, Canadians will have plenty of shops to choose from to purchase cannabis. In Alberta, for example, at least 17 locations will be selling recreational marijuana, with formerly blank labels identifying their ingredient and pricing criteria. Alberta Gaming & Liquor released a report recently identifying these dispensaries, six of them located in Edmonton and two in Calgary, according to Global News. All the retailers have interim cannabis licences, enabling them to order products now in preparation for the Oct. 17 go-live date. Canada will become the second country in the world to open the door to recreational marijuana use, joining Uruguay as the only two countries where it's legal to use for non-medical purposes nationwide.

Because of the shortfall expected, the report's authors believe cannabis contraband will persist for the time-being.

"Our results show that both pricing and supply shortages will contribute to maintaining the black market," the report said, as quoted by The Canadian Press.

The study further stated that because of this reality resulting in lost tax revenues, officials may wind up committing more financial resources to law enforcement activities, a stress point that might be avoided if licencing were occurring at a quicker clip. 

Regardless, the study's authors project the shortfall should be temporary, a problem fixed over time as a natural result of production capacities improving and the novelty effect wearing off.

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