Canadian Cannabis Shortage Continues
Following Canada’s legalization of recreational cannabis in October, the country is now suffering from a serious shortage in stock supply with the issue expected to continue in the months ahead.
Problems started on the very first day of legality with some retailers selling out within 24 hours as curious Canadian customers queued through the night to get their first taste of legal cannabis.
The issues with supply were not merely limited to high-street retailers, though as online shoppers also faced delays with the high levels of interest causing some websites to fail.
The early excitement felt by Canadians as their country became the first from the G20 to legalize cannabis has quickly been dampened by these ongoing cannabis shortages that are continuing to affect a number of suppliers (both physical and digital) across the country. “There is not enough legal cannabis to supply all of the recreational demand in Canada,” said Rosalie Wyonch, a policy analyst at the CD Howe Institute (a Toronto-based economic think tank).
“The shortages are happening faster than I would have expected, but our research suggested quite strongly that there would be shortages in the first year of legalization.”
The shortages are being blamed on an unexpectedly high level of demand with regulatory frameworks, retail chain distribution problems and logistical issues (including ongoing nationwide postal strikes) also cited as explanations for the shortages.
In the first month alone, provinces including British Columbia, Quebec, Alberta, Manitoba, Saskatchewan, Nova Scotia, and New Brunswick have all reported varying degrees of shortages.
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Shortages Lead to Temporary Closures and Financial Losses
Indeed, such was the level of shortage in New Brunswick, more than half of their cannabis locations were forced to temporarily close up shop.
In a statement, the provincial agency responsible for cannabis sales in the state said that while it had ordered a full supply to stock its stores it received just 20% to 30% of that original order.
"Retailers across the country are experiencing a similar situation," it said.
The situation is even worse in Quebec where the Société Québécoise du Cannabis – a government entity overseeing sales have been forced to reduce opening hours to a mere 3 days per week.
In Ontario, where cannabis is only available to purchase digitally, their online retail store has seen some products quickly sell out followed by lengthy waiting periods for resupply.
For those invested in the industry, the financial implications of the cannabis shortages could be disastrous.
Take the case of Trevor Tobin and his mother Brenda who decided to invest $100,000 to become one of the first private cannabis retailers in Newfoundland.
Following the opening of their store in Labrador City, it wasn’t long before supply began to run dry and with each passing day that they are unable to sell, more and more of their investment is lost.
The lack of cannabis has forced their staff to turn away customers while the store has subsequently been forced into temporary closure until supplies improve.
“After a week of 100 apologies (to customers) each day, we’re tired of just saying sorry,” said Tobin. “We were told there would be bumps in the road. This isn’t a bump in the road. This is a pothole.” quoted the NYT.
“I’m paying staff members to sit around with fingers crossed that we’ll receive [new stock]. We never do,” said Tobin. “I can’t keep operating the shop, losing money every day paying staff with no product.”
The shortages are also likely to prove particularly costly for both provincial and federal governments.
In a policy paper developed with colleague Anindya Sen, Wyonch a policy analyst at the CD Howe Institute believes that the government could lose up to $800m in revenues to the black market – far eclipsing the expected tax revenues of $300m-$600m in the first year of legalization.
The paper estimates the size of the black market (including legal supply shortages) to be at least $2.5 billion during the first year of legalization.
"Our results show that both pricing and supply shortages will contribute to maintaining the black market," the report said. "Resulting in lost tax revenues and a continued need to spend significant resources on law enforcement activities related to the market."
The supply for retailers, both private and government, is dictated by contracts between the government and licensed suppliers ensuring that the process of acquiring new sources for recreational cannabis is a lengthy one.
“Health Canada is still licensing producers, existing producers are expanding facilities and at the end of the day, cannabis is a plant. It takes a certain amount of time to grow, process and package, ship and get tested,” said Wyonch.
When the U.S state of Colorado legalized recreational cannabis it took another 3 years before they could satisfy consumer demand and there is a concern that Canada could suffer from similar delays according to Wyonch.
Shortages Worse than Expected
The reported conducted by the CD Howe Institute estimated that the current legal supply will only meet about 30% to 60% of total demand in the first months of cannabis legalization.
However, owners within the industry have been caught off guard by the cannabis shortages which are proving to be worse than expected
"Everybody knew this was going to happen," said James Burns a cannabis industry CEO "Probably, frankly, not this quick and this starkly."
Patrick Wallace, who owns a cannabis dispensary in Medicine Hat, Alberta, predicts it will be a year to 18 months before supply matches demand.
"We're riding on our initial investment of stock from a few weeks back," he told the BBC. "So we're OK now but it's not sustainable."
Health Canada Calls for Patience
While the delays are proving to be both costly and frustrating for consumers and investors alike, Health Canada who is responsible for the granting of licenses to cannabis producers has called for patience.
"It is important to note that October 17 marked the end of nearly a century of criminal prohibition of cannabis and the launch of an entirely new regulated industry in our country," it said in a statement.
"As with any new industry where there is considerable consumer demand, we expect there may be periods where inventories of some products run low or, in some cases, run out."
Responding to concerns that the shortages will force consumers to return to the black market, the federal government pointed to the situation in cannabis legal US states where black markets have proved difficult to displace despite cannabis newfound legality.
Health Canada says it is working with both patient groups and industry insiders to discuss the reports of shortages of certain products or strains and how to best address the situation.
However, until the cannabis shortage is addressed, there remains a serious risk that the black market will continue to grow unless supply problems are not resolved urgently.
“The government will likely be successful in eliminating the black market, as long as the legal supply comes online quickly. Otherwise, we risk potentially entrenching a black market,” said Wyonch.
Clearly, Canada will have to react quickly and effectively to ensure that this issue does not escalate in the coming months.
Having fully legalized cannabis across the country, it is now the responsibility of the Canadian government to ensure that the law they implemented to eliminate the black market, is ultimately effective in accomplishing that goal.