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Prediction: Canada Will Have More Cannabis Than it Can Sell by 2021

April 30, 2019
Nova Cannabis Toronto oversupply
Photos by Jesse Milns
If you’ve been checking out the mainstream media, you might have been heartened to read that Canada is predicted to experience a gigantic cannabis oversupply that will result in lower prices, better quality and a general improvement in the overall economy.

Hundreds of media outlets have carried articles based on a report by Bank of America Merrill Lynch called A Cannabis World… and More People are Living in It that boldly announces that there will be a “paradigm shift” in which Canada will have more cannabis than it can sell by 2021.

While that might be good news, it’s not great reporting. The oversupply prediction was made by New York-based analyst Christopher M. Carey, who has a decent record of predicting cannabis-industry stocks. His reasoning for the prediction is twofold: the provincial governments are granting more and more licenses for growers and processors and the initial problems that arose from first-time retailing will eventually be ironed out.

A steady increase in supply should help ease the long-standing shortage problems, but they might also be eaten up by an increase in demand.

The first point is undeniable. Canada is issuing a lot of licenses, but mainly to small-time suppliers who will produce less than some major LPs earmark for the Yukon.

The second point is based on the American model in which retailers in places like Colorado and Washington started strong and then got stronger. “As seen in other legal cannabis markets such as some in the US, distribution channels do improve,” Carey said. “We see the same dynamic occurring in Canada, especially as product quality improves, drawing more of the illicit sales into the legal market.”

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But the paradigm is flawed. Those stores in the US are all privately owned and come with a strong profit motivation. Much of Canada’s market is publicly owned and politicians have not proven to be effective cannabis dealers thus far. While it is true that the Canadian retail market is likely to improve with experience, to compare it to the US market is overly simplistic. As many a pundit has pointed out, only a government can find a way to lose money selling drugs.

More than a little skeptical of Carey’s bold prediction, we asked several of the big-time players in the Canadian cannabis industry what they thought of the prediction of an oversupply by 2021. Their reactions ranged from shouts of “ridiculous,” “ludicrous” and “come on” to outright laughter.

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One, who chose to remain anonymous, points out that there’s no reliable indication that the nationwide legal flower shortage is going to abate soon. “The amount being grown legally could double tomorrow and we’d still be short,” he said. “You can hand out all the licenses you want, but it takes time for product to get to market in any kind of volume.”

While the steady increase in supply should help ease the long-standing shortage problems, they might also be eaten up by an increase in demand. The next wave of legalization sees processed goods like edibles and extracts on the near horizon.

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“Retailers have been desperate for product for so long that shortage is considered the norm,” he told Leafly. “It’s going to take a long, long time for that to change and with growing acceptance and deregulation, it’s almost certainly going to get worse.”

The initial problems with the rollout of cannabis retail in Canada has led to consumers seeking “alternatives.”

One of those alternatives, of course, is the illicit market. Carey’s report puts the illicit market’s share of cannabis sales in Canada as approximately eleven times that of the legal market. But he also indicates that growing acceptance and efficiency in the legal retail market will erode that discrepancy in the future. That means that the widespread migration from the black market to the legal retail market that he predicts will create even more demand and will further exacerbate any shortages.

If, perhaps, half of black market customers decided to switch to retail, it would increase demand in the legal market by about 550%.

While a cannabis oversupply would be a boon to Canadian consumers, the chances of it actually happening appear slim.

Jerry Langton's Bio Image

Jerry Langton

Jerry Langton is a political reporter and author who splits his time between Canada and NYC.

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