In the study, to be released next week by researchers at the University of Waterloo and the C.D. Howe Institute, it is revealed the supply of legal marijuana in Canada will only meet 30 to 60 percent of demand after legalization, keeping the black market alive and cutting into the federal government’s tax take, reports Bloomberg News.
And while licensed cannabis producers have vaults with thousands and thousands of kilograms of the product stored safely away — ready for October 17 and legalization to go into effect — that supply won’t meet demand during the first year of legal recreational use.
In the study, it is estimated that cannabis supplies will reach 210,000 kilograms or 210 tons in the first year. “There is not currently enough legal supply of marijuana to actually supply all the recreational demand in Canada,” said economist Rosalie Wyonch of the C.D. Howe Institute, a public policy think-tank.
“We didn’t have enough producers far enough ahead from legalization that they’ll actually be able to deliver enough product to market by the time legalization happens.”
One problem noted in the study was the slow rollout of regulations at the provincial government level, even though producers have been working to ramp up the supply. Some producers have been struggling to meet targets, and there is enough concern that advocates of the illegal pot industry are sounding the alarm about possible supply issues.
“The legal, licensed producers of medical cannabis have signed up to supply recreational, but they don’t have enough supply for patients or recreational users,” cannabis activist Jodie Emery told CTV News Canada Tuesday.
Making sense of demand estimates
The study used data on medical marijuana from Health Canada included inventory, production and sales information licensed producers are required to provide.
This information also included estimates on growing times, licensing and capacity to project recreational supply. Statistics Canada provided demand forecasts based on quarterly surveys. Demand patterns from Washington and Colorado were also used in the study.
“I don’t see empty shelves manifesting on the first day probably, and not the first month,” Wyonch said. “But as the year progresses, what we’ll see is either prices in the legal market will have to rise, or we’ll actually see the supply shortage.”
However, Wyonch doesn’t believe a shortage will be seen right away. “We’re concerned about the second or the third orders when the storage facilities at the licensed producers start to get a bit bare.”
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Canaccord Genuity, one of the most active investment firms in the cannabis business, estimates current annual Canadian demand is between 400,000 to 500,000 kilograms. Health Canada’s demand forecast is close to twice that at 926,000 kilograms.
The researchers calculated that based on a price of C$9 ($6.96) a gram, near the federal government’s target price of C$10, the provincial governments would miss out on about C$774 million in revenue from excise and sales taxes, and provincial levies due to the supply gap.
It is interesting to note that in January this year, Wyonch wrote a memo to Health Canada about the possibility of a cannabis shortage following legalization. In her memo, Wyonch wrote that it is “unlikely that there will be enough legal marijuana to satisfy much more than half of the total domestic demand. This shortage leaves room for the black market to operate profitably at the expense of government revenues, legitimate business, and public health and safety.”
