Canadian’s Cannabis Crisis
Canadian Cannabis producers are facing a crisis. Since Canada’s launch of adult-use sales in October 2018, an MJBizDaily analysis indicated that less than 20% of their production had been sold.
Data gathered into 2020 reveals that most of the cannabis produced from 2018 through 2020 has either been stored in inventory or destroyed, with less than one-fifth reaching retail stores.
This disparity has led Canada’s largest cannabis production companies to suffer a combined loss of over 11 billion Canadian dollars ($8.8 billion). These companies are the backbone of the industry and produce a majority of cannabis products, and their losses represent a significant blow to the cannabis industry as a whole.
The Crisis of Product Wastage
With most of the products produced over the two years not selling as expected, product wastage has exacerbated the crisis. Data collected by Health Canada reveals that out of the 2.7 billion grams of cannabis produced in the two years between 2018 and 2020, 1.1 billion grams of cannabis products had been placed in storage and at least 450 million grams destroyed by producers for various reasons.
In addition, 6 million packages of dried cannabis, edibles, and extracts were destroyed.
Experts state that most of the unpackaged inventory currently held in warehouses across Canada accounts for almost 40% of total production. Despite accounting for close to half of the total product, it will likely remain unsellable.
Reasons Behind the Crisis
Although various circumstances lie behind the crisis, a majority of industry experts claim that inferior quality product is to blame for the low sales. Out of the roughly 2.7 billion grams (2,976 tons) of cannabis produced in Canada between October 2018 and December 2020, only an estimated 450 million grams reached stores.
Other pundits have attributed the low sales to a lack of experience. They claim that Canada’s producers didn’t have the expertise to produce cannabis at the scale they promised investors. While attempting to capture as much of the market as possible, producers compromised on quality, building sub-par facilities.
However, the blame can’t be placed solely on the shoulders of producers. Canada’s federal and provincial governments share the responsibility behind the issue. Cannabis experts have voiced their frustration in a government that has legalized cannabis without addressing the stigmas against it. Additionally, they claim that those keen to participate in the budding legal cannabis industry face obstacles placed in their way by a convoluted legal system.
Economic Fallout
With less than a fifth of the cannabis produced between 2018 and 2020 being sold successfully, many of the significant greenhouses that drove cannabis share prices up during the cannabis stock market hysteria of 2018-19 are being sold off for a fraction of their initial value.
Leading companies have been forced to sell off their properties and facilities for prices far below market value. Canada’s two leading production companies have allegedly shuttered the highest number of facilities. Those same companies have also reported the steepest losses, and neither company has reported a profit.
Is There a Way Out?
In spite of the severe consequences of the crisis, and Canada’s cannabis industry has received a heavy blow, only time will tell if anything emerges from the ashes.
Unfortunately, only time will tell if the Canadian cannabis industry will recover from this crisis and whether leading production companies make a successful recovery. For now, the future of the Canadian cannabis industry remains uncertain.