Ahead of Canada's legalization date, cannabis suppliers struggle to meet demand
- Licensed cannabis suppliers in Canada will only meet 30% to 60% of demand for the product when the drug is legalized for recreational use on Oct. 17, according to a projection by the C.D. Howe Institute.
- Vic Neufeld, CEO of Aphria, one of the country's largest licensed producers, confirmed as much in an interview with the Financial Post this week, noting the company will not be able to supply the full demand "in the next three months."
- Supply chain issues are among the chief problems, Neufeld said. Packaged cannabis products require a special "excise stamp" from the government, which have been delayed. Harvest capacity issues are also a problem as the country prepares for an "unprecedented" legalization, according to the Financial Post.
The North American cannabis supply chain should be relatively uncomplicated, yet financial, political, regulatory and social pressures are constraining it.
In the U.S., medical marijuana is legal in 30 states, and recreational marijuana is legal in nine states. Yet it is still considered illegal at the federal level.
In my home state of Massachusetts, medicinal marijuana has been available since 2012 through selected dispensaries. In the fall of 2016, recreational marijuana was approved by voter referendum but it is still not approved for sale, caught between social blowback in some communities and a state hiding behind some mercurial regulatory enforcement. Demand is building and cultivation facilities are being licensed and built, but no recreational dispensary is yet licensed.
Grow facilities are quite sophisticated operations run by scientists, engineers, and agricultural experts; located in very large and secure facilities. In addition to the crop, suppliers are needed to support all ancillary equipment and services, just like any other factory.
Mainstream suppliers have been slow to respond to the market, while early adopter suppliers often do not have the ability to properly service their customers, restricting supply.
Banks see too much of a risk in lending to companies in the recreational cannabis sector. Recently a Massachusetts credit union has decided to offer banking services to the recreational marijuana industry and that may begin to open up financing.
Most mainstream companies have the cannabis market squarely in their market strategies due to its huge upside potential. Once social acceptance, the regulatory environment and profit projections align, capacity issues in the supply chain will be resolved. It’s just a matter of time.