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article imageAnalyst warns Canada could hit cannabis oversupply by end of year

By Karen Graham     Jun 20, 2019 in Business
Canada could reach an oversupply of legal pot as soon as the end of this year, depending on how the rollout of edibles and other next-generation products impacts supply, a U.S. cannabis research analyst says.
Last week, the Financial Post reported that in Alberta, the moratorium on new retail cannabis shops had been lifted and in Quebec, the government-run pot stores were back to normal hours. Even in Ontario, there are rumors that a second round of retail licenses may be in the works.
Cannabis shortages appeared almost immediately after recreational marijuana was legalized in Canada in October 2018. Provincial distributors blamed producers and federal regulators, while one expert said the shortage could last five years.
Something has definitely changed in Canada's marijuana sector because all of a sudden, industry analysts are predicting an oversupply of pot by the end of the year, depending on how well the rollout of CBD-infused edibles goes in October. And this kind of problem could be great for consumers because it will lower retail prices.
“I’m forecasting an oversupply in dried cannabis by January 2020,” said Chris Damas, an industry analyst who authors The BCMI Cannabis Report and has spent years documenting the growth of the domestic cannabis industry, reports the Financial Post. last week.
Damas based his prediction on an analysis of reported harvests of 18 of the biggest licensed producers in Canada, saying 76,112 kilograms of dried cannabis was produced in the first quarter of 2019. Damas predicts that by the fourth quarter, this number will soar to almost 150,000 kilograms.
Tilray grow room
Tilray grow room
Tilray Inc.
U.S.-based analyst also agrees
Colorado-based BDS Analytics’ managing director and principal analyst Tom Adams also agrees with the oversupply scenario, which he says depends on how the rollout of edibles and other next-generation products impacts supplies, reports CTV News Canada.
"The point of balance will last about 10 seconds... and then we'll be on to the competitive battle that consumers can look forward to, of course, because that means lower prices," he said in an interview. Based on the company's latest research report, legal recreational and medical cannabis spending in Canada is expected to grow from US$570 million in 2018 to roughly US$5.2 billion by 2024.
The forecasts by both analysts are dependent on the rollout of cannabis edibles. Just last week, the federal government announced that regulation for the second wave of cannabis products, such as edibles and topicals, would come into force on Oct. 17.
Federal license holders, once the regulations go into effect, will have 60 days to notify Health Canada of their intent to sell the new products, meaning that the earliest they could hit the shelves would be mid-December. Industry watchers and players have said they foresee the full rollout of these next-generation products to come in 2020.
Adams said he expected competitive pressure to rise and prices of cannabis to start coming down "for sure, by the first half of next year. "But it may well happen before edibles even kick in... There's plenty of capacity and plenty of financing for more capacity to be added, and that inevitably will lead to a moment of supply balance then overabundance," he said.
More about Canada, Oversupply, BDS Analytics, edibles rollout, Cannabis
 
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