Canada will experience a weed shortage once legalization hits.
Estimates suggest that demand for weed in Canada will be about 795,000 kilograms (or 1.8 million pounds) in 2018. Right now, all the licensed producers (LPs) in Canada will be lucky to hit 100,000 kilograms by the end of the year. Just about everybody in the Canadian industry expects a weed shortage over the first few days, weeks, or maybe even months of legalization.
Health Canada is responsible for overseeing Canadian LPs. Health Canada has people working weekends to approve new licenses and help LPs expand, according to cannabis attorney Jonathan Sherman. “They’re working as hard as they can,” he says.
Not only is Health Canada putting in extra hours to try and mitigate the weed shortage, LPs are working hard to secure as much investment as possible so they can increase production. But Sherman, who works with Cassel Brock law firm to help clients navigate the cannabis industry, says these efforts won’t be enough. “I would say that regardless of all of this investment, there’s still going to be a shortage,” he said.
It’s impossible to know how bad it will be, but there are a few things we know for sure.
Shortages are common
Most states that have legalized marijuana have had some kind of weed shortage shortly after. Colorado had a shortage in 2014. Washington DC faced a similar problem the following year. And it didn’t take long for Nevadans to realize they had a weed shortage only weeks after their recreational market opened in July. Colorado, DC, and Nevada have all since addressed the issue.
The Canadian weed shortage will be much the same. Governments, through bad planning, incompetence or both always seem to low ball demand when they’re setting up the supply chain. “The supply issue, and this whole topic. It’s definitely a real thing, but it’s overhyped,” says Michael Garbuz, a lawyer with CannaRoyalty, a legal cannabis investment corporation.
Garbuz recognizes that there will be a weed shortage, but he’s not as apocalyptic as many others in the industry. “In a year or two or three years, the supply will meet the demand, then it will expand over it,” he predicts.
The weed shortage benefits some
At least in the short term, current Canadian LPs will benefit from the weed shortage because investors have connected production output to value. That may not be a long-term solution, but it’s helping these young farms explode in size. “It’s almost like an arms race,” says Garbuz.
Garbuz says, however, that this honeymoon is sure to end. “More mature markets like wine or beer, you don’t value the producer based on volume,” he said. “What happens when the price is driven down?”
Medical patients will be a priority
Obviously, this is for the best. Some Canadian LP’s have even announced that they’ve already, without pressure, decided to provide for their medical users before anyone else.
Their motivations are unclear. Currently, it’s actually more lucrative for LPs to sell to medical cannabis patients than wholesale recreation suppliers. It costs an LP two dollars to produce a gram of weed. When they sell it to a patient at 10 dollars, they keep all those profits. Inevitably, legal retailers, like the Cannabis Control Board of Ontario, won’t pay margins like that for wholesale weed. “Their margins will remain higher there unless the federal government says and LPs are forced to sell to retailers,” says Vin Maru, the editor of investinmj.com.
Getting rid of the black market
If there is no weed on the shelves at legal stores, what will people do? Probably just head to their favorite dispensary. Since actually shutting down all of the ‘gray market’ dispensaries can’t logistically happen on day one, most are going to operate just fine. If the weed shortage is very bad, dispensaries are really going to be the only way to get weed for recreational purposes other than that soon-to-be-extinct weed dealer.
In fact, battling the black market is a continual concern for people in the legal industry. “If you don’t have enough supply, it’s one of many ways we cannot win fighting the black market game. You’re just not going to be able to win if the product isn’t there,” says Garbuz.
Even if there’s a legalization miracle, the black market isn’t likely to disappear overnight. “There will still be a role for the black market, not only because of the shortage but for edible products that don’t have clear legal parameters,” says Sherman.
Legalization comes with growing pains and a shortage is inevitably a part of that.