Canada Is Headed Toward an Epic Glut of Marijuana

Article by Sean Williams, The Motley Fool

Canada Is Headed Toward an Epic Glut of Marijuana Breakneck capacity expansion could lead to an estimated 1 million kilograms of cannabis in domestic oversupply. Sean Williams

In recent years, no industry has grown more impressively than that of legal cannabis. Depending on your preferred source, the legal weed industry is probably growing by 25% to 35% on an annualized basis over the intermediate term, with sales estimates varying from almost $25 billion in North America by 2021 (ArcView) to as much as $50 billion in the United States alone by 2026 (Cowen & Co.).

The public’s sentiment toward marijuana is also improving — at least in the U.S. No shortage of polls over the past year have shown that Americans overwhelmingly favor the idea of legalizing recreational weed, and have even stronger feelings toward legalizing medical cannabis.

Yet it’s Canada that’s led the way as the premier cannabis market. Having already legalized medical marijuana back in 2001, the country appears to be on the verge of green-lighting the sale of recreational pot to adults by this coming summer. Its Senate is slated to vote on the measure on June 7, with passage and the expected signing of the bill paving the way for adult-use sales to commence in August or September. This could, in all likelihood, add $5 billion a year or more in sales to the industry.

Canada could be headed toward a marijuana glut of epic proportions

As you might imagine, Canadian cannabis growers have been angling to get as much of the medicinal cannabis and recreational market as they possibly can, though recreational sales will account for a significantly larger share of total sales. Organic expansion, strategic partnerships, and acquisitions have been occurring at a blistering pace. In fact, four of the five largest marijuana acquisitions of all-time have occurred within a four-month span.

Unfortunately, this rush to grow capacity as quickly as balance sheets will allow could be setting Canada up for an overabundance of cannabis of epic proportions. Even though no one has any real idea how much marijuana Canadians will demand, there’s no shortage of guesstimates.

A recent online report from Grizzle figured countrywide demand at around 800,000 kilograms per year. Meanwhile, uOttawa estimates the annual Canadian consumption at 770,000 kilograms, while a 2017 report from the Office of the Parliamentary Budget Officer projected 655,000 kilograms in purely recreational demand. This was at a time when medical cannabis producers were delivering around 80,000 kilograms a year. Everything is a guess at this point, and most folks probably have their preferred source, but the relative consensus is that 730,000 kilograms to 800,000 kilograms is where the annual demand floor lies.

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