Canada’s predicted legal cannabis shortage has turned into reality, and it may take up to 18 months to catch up to demand. It’s been a source for frustration for licensed producers, retailers and customers — but not so much a surprise for industry insiders.
“The supply shortage for Canadian [licensed producers] has been something industry operators and commentators have been projecting for literally years,” says Michael Garbuz, CEO of Vision Advisory, which provides corporate advisory services to companies in the cannabis industry. “Distributors and retailers are feeling the pressure from consumers and media to increase their product availability and ability to forecast demand, but these challenges have been expected and will continue to be prevalent in the coming months and will hopefully continue to improve as the Canadian market matures.”
Shortages have been felt from coast to coast. Nova Scotia has only received up to 40% of the supply it needs to meet demand in its 12 government-run stores, while Quebec cut the operating hours of its cannabis stores to four days a week.
In Alberta, the provincial agency in charge of licensing cannabis stores announced Nov. 23 it’s putting a hold on approving more retailers until supply lines stabilize. As reported by the Calgary Herald, Alberta Gaming, Liquor and Cannabis only received 20% of supply needed to support the 250 retail stores expected to open in the province after Oct. 17. In Ontario, the government-run Ontario Cannabis Store has also experienced shortages and longer-than-usual delivery times.
Infrastructure growing pains
The delays have left the industry struggling to catch up, trying to satisfy both recreational and medical consumers and looking at what to do next, especially as U.S. companies look over the border for opportunities.
Cannabis producers were building larger growing and processing facilities that weren’t completed before Oct. 17, and Health Canada approvals can be a slow process. There are 134 Canadian licensed cannabis producers as of this writing, but there are “more than 500 licences still in the queue waiting for Health Canada’s stamp of approval,” according to Canadian Lawyer. Even after they get their approvals, it can take up to a year before they can sell product.
Commodity vs. medicine
Sung Kang, chief marketing officer at licensed producer VIVO Cannabis, says the industry went from 300,000 registered medical cannabis patients to millions recreationally “literally overnight.” An estimated 4.6 million Canadians will use cannabis at least once in 2018, according to the Office of the Parliamentary Budget Officer. That number is expected to increase to 5.2 million by 2021.
“The system was inherently flawed from the beginning,” says Lisa Harun, co-founder of the Toronto-based vaporizer company Vapium. “The market we should be most concerned about is the medical one, the people who actually legitimize cannabis as medicine.”
While there will be a short-term impact on their ability to fill those orders in the recreation channel, relief will be at hand when Canadian producers get better at growing and processing at a national scale.
In order for that to happen, Harun says the supply chain needs to be a hybrid of fast-moving consumer goods combined with medical regulations and “a big fat focus” on quality control. Shipping medication past sell-by dates or moldy product can harm an immunocompromised patient.
“Growing cannabis is much a science as it is a nuanced art, and chopping prices will only effect the end result. It is our duty to protect and prevent the race to the bottom,” she says. “Cannabis cannot become like wheat; it is not a commodity, it is medicine. For recreational, we need to look at tiered pricing and scale of economics.”
Most experts interviewed for this story agree that would mean pricing recreational cannabis higher than medicinal, which may seem unfair. But as Kang points out, the choice and product variety is wider and cannabis-infused food and beverages will be legally available sometime in 2019. He says retailers who can weather the shortage may benefit from ongoing consumer interest.
‘Birthing an entire industry’
Since the approval process is ongoing, there’s no way of telling how much cannabis will be produced once Health Canada approves more licences but everyone is confident the shortage will be, well, relatively short. Licensed producers are ramping up their assembly and production times, ready to go when they get their approval.
“What the legislators and manufacturers attempted to do this year is nothing short of birthing an entire industry,” Kang says. “It’s a massive undertaking to say the least, and we have to accept that there are going to be some growing pains along the way.”