In 2018, the demand for cannabis in Canada will be about 1.8 million pounds, but licensed producers (LPs) will have a fraction of that ready by the end of the year. Experts predict that there will only be about 220,500 pounds of cannabis ready once legalization launches if the launch date is still July (that’s likely going to change, too), leading to a likely cannabis shortage in Canada.
“I don’t think there’s [a licensed producer] today that could even do the initial stocking order for 40 stores,” predicted Chuck Rifici, chief executive and chairman of Cannabis Wheaton Income Corp. an investment company partnering with cultivation brands.
“I would be shocked if they did not sell out on the first day.”
Those who believe that the shortage is inevitable anticipate it taking at least up to several months before the LPs can balance out production with demand. Mackie Research Capital, the firm responsible for the demand predictions, doesn’t believe that supply will meet demand until the end of 2020.
Health Canada is the governing entity responsible for regulating LPs. The organization is working overtime to get as many licenses approved as it can, and existing LPs are fundraising on overdrive to produce more weed. Over $1 billion has been raised by cannabis companies and the bulk of those funds have gone toward projects creating or expanding production facilities. These expansions should bring production capacity up to 1,587,328 pounds, a number that is much closer to meeting demand predictions. Even so, there is a substantial portion of the industry that resolutely believes product will sell out in the early days of legalization.
Maybe There Won’t Be A Weed Shortage
On the other hand, there are those who argue that the apocalyptic talk about an impending shortage are hyperbole. For example, Miles Light, co-founder of Marijuana Policy Group, believes that there will be far more cannabis available than people realize. “There’s a lot of talk out there about how there will be an acute shortage of legal cannabis next year, but our analysis tells us that is very unlikely,” he said. Light estimates that there will be 1,102, 311 pounds of usable marijuana—that means every part of the cannabis plant that can be used for consumption in addition to the flower—by the end of 2018.
Light was hired by Health Canada to provide an evaluation of the Canadian government’s preparation for legalization. His data comes from production from current LPs as well as those that plan to begin producing. He is even more confident of his calculations because they don’t include new applicants.
According to Light, fears about a cannabis shortage are based in an underestimation of Canadian LPs’ capabilities, especially when compared to American cannabis legalization. “There might have been far more LPs in say Colorado back when they legalized, but these producers are far, far larger than the average producer was in Colorado. They’re doing a massive buildup,” he explained.
The range of speculation comes with such an unprecedented moment in cannabis history. Canada is not the first country to legalize cannabis for recreational use. In 2013, Uruguay became the first country to do that. However, the population difference between Uruguay and Canada is dramatic. Uruguay has a population of about 3.4 million. Canada has a population of 36.29 million. That is an enormous market size difference. Additionally, cannabis is not brand new to Canada. Since 2001, Canada has regulated cannabis for medical use which means that the country has far more experience with weed than any country in the world. These factors make it difficult to know for certain just how legalization will roll out and how dramatic a shortage there may or may not be.
How Common are Cannabis Shortages?
It turns out, pot shortages following legalization are pretty standard. Colorado faced a shortage after it launched recreational weed in 2014. When Washington DC implemented its medical marijuana program, frustrated residents dealt with shortages for months. Nevada sped through its rulemaking process to begin recreational cannabis sales less than a year after voters approved it, and the state faced a massive shortage because of messy planning. California may be dealing with a weed shortage of its own now that 99% of the cannabis farms operating in its state lines are considered illegal.
These kinds of shortages happen for a number of reasons. The government doesn’t license enough growers to handle demand. Demand far exceeds pre-legalization estimates. Cities implement stricter cannabis laws that make it impossible to meet market demand. These are some of the most common causes of shortages. But pot consumers like their weed, and entrepreneurs like their money. Those two truths make shortages temporary—when the right infrastructure is in place, the market bounces back and regulates itself.
This is why entrepreneurs and customers shouldn’t be too worried—it might take several months for supply and demand to balance out, but it will happen. And for those producers already in the game, the weed shortage isn’t such a bad thing. The few licensed producers have a temporary monopoly over the industry, and that means they will have a lot more profit to split between a lot less competition. This won’t last forever—as more licenses are issued and the industry expands, competition will become fiercer, and that’s good news for the consumer.
How Will This Affect Medical Patients?
Health Canada has encouraged LPs to prioritize medical patients over recreational users. A spokesperson said,
“The Government expects that licensed producers will prioritize sales to individuals who require cannabis for medical purposes over non-medical sales.”
However, this isn’t such a simple mandate especially since most of the LPs responsible for producing medical marijuana have taken on the recreational market as well. This is why Jonathan Zaid, executive director of Canadians for Fair Access to Medical Marijuana, believes that the onus should be on the government to ensure that medical patients have access to their medicine.
“It’s important that these products continue to be available as we head into legalization,” he said.
“It’s concerning that there is no specific supply guarantee for medical cannabis patients. We are really advocating for Health Canada as well as the industry to ensure that the medical market is fully supplied, to ensure patients have reliable, consistent access.”
Until Health Canada issues more licenses, there is a chance that medical patients will feel the shortage, too. That is, if there is one to feel.