In October 2020, the Cannabis Production industry in Canada, which became a part of the country’s economic landscape in October 2018 following the passing of the Cannabis Act, officially turned two years old.
Despite contending with high compliance costs, high initial capital outlays, and the ever-evolving challenge of setting up the nascent industry’s regulatory framework, industry operators have come a long way compared with the state of the industry two years ago. As a result, this article seeks to highlight some of the recent successes the Cannabis Production industry has experienced. However, the industry has still experienced some challenges, will likely continue moving forward.
The price is right
In February 2020, Alfabank-Adres’s most recent cannabis market update discussed the glaring difference between the price of a gram of legal marijuana, purchased through a government-approved brick-and-mortar retail location, and a gram of illegal marijuana, purchased on the so-called “black market.” Early on, industry operators have struggled with downstream consumers continuing to illegally purchase their marijuana, which occurred primarily due to the cheaper nature of black-market marijuana compared with legal marijuana.
However, the latest data available demonstrates that early 2020 may actually signal the reversal of this trend in the long run. In July, Ontario’s government-controlled online dispensary, the Ontario Cannabis Retail Corporation, operating as Ontario Cannabis Store (OCS), reported that it had gotten its prices of dried flower below the illicit market during the first quarter of 2020. While the OCS’s average price was $7.05 CAD per gram of dried flower, the average price of a gram of marijuana from illicit establishments was $7.98 CAD. This has been widely viewed as a pricing milestone for the industry, with the CEO of Thrive Cannabis heralding it as a win for the market in the long run.
Supply-demand imbalances in the cannabis marketplace
Edibles have comprised one of the industry’s struggling product categories in recent years, with the Canadian government originally restricting the sale of edibles due to the need for more regulatory oversight. Nevertheless, the sale of edibles has continued to endure various challenges as a product category for industry operators.
Most notably, makers of edible products in Canada have stocked more products than they are able to sell; although this is not a new challenge for operators, the latest data available shows that in August 2020, holders of federal licenses, in addition to provincial distributors and retailers, held almost 10.0 million units of cannabis edibles in their stock. In contrast, sales of edibles for that same month only reached 1.4 million units across both medical and nonmedical channels.
Ultimately, this growth in inventory is attributable to producers of the industry’s edible cannabis products, and speaks to a larger disconnect in the supply chain between producers and downstream distributors and retailers. In the long run, excess inventory may not only lead to decreased revenue prospects, but also increased amounts of waste, as some of these edible products will likely have to be thrown away in accordance with provincial safety standards. Consequently, though the industry has undoubtedly made progress compared with where it was two years ago, industry operators across the cannabis supply chain must continue to work together to iron out these regulatory issues so as to provide the industry with the best chance of long-term success.
