Will cannabis supply outstrip demand? Some suspect as much

As barcode labels get printed in anticipation of Oct. 17, the date in which the legal recreational use of cannabis becomes official in Canada, there are some question as to whether demand for marijuana will live up to its billing.

As reported by the Ottawa Citizen, Canada’s 10 largest cannabis producers say they have the ability to pump out approximately 1.8 million kilograms of cannabis per year as early as 2020, assuming nothing goes awry between now and then. However, the Parliamentary Budget Office believes that by 2021, demand will top out at 734,000 kilograms annually.

This presents a pricing dilemma for both producers and dispensaries, eager to make a profit off of cannabis, an aim that may falter if they miscalculate how interested consumers are in buying.

Vic Neufeld, Aphria CEO, speculated in a conference call earlier this year that producers may need to rein in their expectations.

“Unless someone’s out there hiding 100,000 kilograms, we’re looking at a real shortfall,” Neufeld warned at the time.

Regular cannabis consumers are primarily in the territories.

16 per cent of Canadians Use Cannabis Regularly

While Canada is one of the more permissive countries in the world for marijuana usage, a relatively small fraction of the populace consumes it on a regular basis. According to data compiled by Statistics Canada, just 16 per cent of Canadians 15 years of age and older have smoked cannabis in the last three months. In certain parts of the country, the usage rate is much higher, specifically the territories like Whitehorse (23 per cent), Yellowknife (27 per cent) and Iqaluit (33 per cent).

However, Michael Garbuz, legal counsel and corporate strategist with cannabis investment firm CannaRoyalty, told the Ottawa Citizen that oversupply isn’t necessarily a bad thing. In fact, it may ultimately prove to be a net positive because it will force suppliers to think more strategically.

“If you’re able to make product, whether it’s dried bud or advanced product (like edibles or oils), that resonates with consumers,” Garbuz stated. “That’s going to be the key to success.”

He further stated that businesses selling cannabis will need to more assiduously analyze their custom label strategy to entice buyers through branding. In short, dispensaries may need to adjust their sales pitch to show why their product is better than their competitors’.

“For companies who are not able to sell product effectively, it’s going to be a bad situation for them,” Garbuz warned.

52 lawmakers voted in favor of Bill C-45.

Lawmakers Delayed Implementation of Bill C-45

With the legalization dateline less than a month away, recreational cannabis use was green lit back in June, when the Senate overwhelmingly voted in favor of its legalization, 52 lawmakers supporting Bill C-45 and 29 opposed. The go-live date would have been installed sooner, but legislators wanted to give business owners the room they needed to implement the appropriate regulations so they can sell the cannabis-based products with the proper protocols in place. The delay in implementation has also given businesses more time to diversify their offerings and applying horticultural labels to make them distinguishable.

Ian Irvine, Concordia University professor of economics, told the newspaper that dispensaries may have to wait awhile before determining what the market is for their product and what they’re able to charge.

“There’s going to be pressure on prices, I think,” Irvine predicted. “If there’s a lot of production capacity out there in the legal market, then that’s going to squeeze prices down, at least.”

Regular marijuana users spent a considerable chunk of change on cannabis, with nearly 50 per cent of Canadians who consume it daily paying $250 over the last three months, according to Statistics Canada.

But even if producers do have a glut of cannabis on their hands in the post Oct. 17 world, there’s plenty of international demand for marijuana. Last year, over 400 kilograms of cannabis oil product in Canada was sent to overseas markets, the Ottawa Citizen reported.