Article by Sean Williams, Motley Fool
The legal marijuana industry has come an exceptionally long way in a very short period. As recently as 2005, recreational cannabis was illegal everywhere, just a small handful of U.S. states were allowing medical marijuana to be prescribed by a physician, and a Gallup survey found that just one out of three Americans supported legalizing weed at the national level.
Today, two out of three Americans surveyed by Gallup favor legalizing pot nationally, 33 U.S. states have given the green light to medical marijuana (including 10 that also allow recreational cannabis), and Canada has become the first industrialized country worldwide to legalize adult-use cannabis. Having brought in close to $10 billion in global sales in 2017, the duo of Arcview Market Research and BDS Analytics expects the global weed industry to net $31.3 billion in annual sales by 2022.
Everything would seem to be perfectly conducive to growth throughout North America. But what you may not realize is that Canada’s supply chain is in some pretty deep trouble.
Currently, Canada is contending with a serious pot shortage
Right now, Canada is contending with a supply shortage that could last up to two more years. This supply shortage is being caused by a combination of factors.
For starters, growers are still in the process of building out their capacity. Since committing to expansion often required substantial investment, pot growers weren’t able to start on capacity expansion for the recreational market until they were certain that the Cannabis Act would be signed into law. That certainty didn’t really manifest until December 2017/January 2018. In other words, growers got a pretty late start ramping up production to meet domestic demand.
As an example, The Green Organic Dutchman (NASDAQOTH:TGODF) is likely a top-five producer at 195,000 kilograms in forecast peak output, according to its management team. Yet, until recently, The Green Organic Dutchman hadn’t even made a sale. The company will continue expanding cultivation space in 2019, but The Green Organic Dutchman isn’t expected to be running on all cylinders until sometime next year.
Packaging solutions have been another near-term problem. Regulatory agency Health Canada has laid out specific guidelines that growers and retailers need to follow with packaging in order to ensure that products are eligible for sale in licensed dispensaries. These stringent requirements have caused a packaging shortage, leaving unfinished cannabis (i.e., unprocessed but harvested flower) waiting in the wings.