2018 was a momentous year for cannabis advocates as Canada became the second country (after Uruguay) to legalize recreational marijuana use. Canadians and cannabis companies alike eagerly awaited legalization, but the rollout hasn’t been as smooth as they would have liked.
The most pressing problem facing the country’s legal weed market is the fact that, in the majority of provinces, suppliers are unable to meet demand. According to MarketWatch, the complexity of scaling up a national legal cannabis supply chain has left many retailers with just a fraction of the promised products. In many areas, the supply shortage may last well into 2019.
Some experts say the bottleneck exists in the regulatory approval by Health Canada of Licensed Processors and Cultivators. “The cultivation and processing capacity exists, but the lack of licensing is keeping that production off the shelves,” Rob McIntyre, CFO of Salvation Botanicals Ltd., told me. His Canadian extraction and formulation company recently agreed to produce cannabis products for U.S.-based Medical Marijuana, Inc. for the Canadian market.
“Health Canada has added significant resources to attempt to shorten the approval process, but the backlog is significant,” McIntyre explained. “In the coming months, we expect to see this supply shortage ease.”
On the opposite end of a product shortage is strong product pricing for cannabis producers and retailers. A gram of high-quality cannabis in Vancouver, Canada, for example, sold for $752 a gram in November 2018. Meanwhile, in Portland, Oregon, where an overabundance of marijuana is begging to cross state lines, you could buy an entire ounce of similar high-quality cannabis as recently as December.
These initial gains, however short-term they may be, will help Canadian cannabis companies offset their startup costs. “This will quickly help companies recoup the costs of building expensive cultivation facilities,” said Debra Borchardt, CEO of Green Market Report, and Canadian cannabis industry expert. “Once production begins to meet demand, then the prices will fall, which is great for consumers, but will come at a cost to the producers.”