Visit October 17, 2018, Canada legalized the purchase and consumption of weed. A tremendous initiative quickly fell victim to its own success. In the weeks following the end of Prohibition, retailers found themselves in short supply. A year later, the cannabis industry is plunged into overstock.
After supply difficulties, Canadian ganja professionals are now facing demand and distribution problems. Since the start of the year, stocks of ready-to-sell weed (i.e. with a use-by date) have more than tripled, reaching 60 tonnes in September, compared with 17 tonnes nine months ago. Health Canada, which supplied these figures, points out that in August, sales of dried flowers reached just 13,000 kilos.
In short, total inventories are 30 times greater than monthly sales, all regions and sectors combined. A very bad ratio for growers, producers and investors in the cannabis industry.
This situation is all the more paradoxical given that, as early as November 2018, supply was becoming so scarce that the media and observers were anticipating a shortfall in this area… until 2022! (see the Radio-Canada article here or the the report by Le Monde.) This situation has prompted a number of entrepreneurs, both North American and European, such as Green House (see our article on Arjan Roskam ) to invest massively.
Twelve months and six harvests later, Canada finds itself with a production surplus of a commodity that, unlike oil, is rapidly perishable. It’s against this backdrop that Hexo Corps, a cannabic retail giant, announced a (dry) loss of $56 million due to the liquidation of $17 million worth of stored weed. As sacred as the plant may be, it is nonetheless subject to the sanitary requirements and precautions of a legal market.
Reposition the offer.
This situation has already prompted suppliers to lower their prices and enter new segments. Hexo Corp has recently launched a new range of products called Original Stash. Weed sold for CAD$5 (€3.44), less than half the average price six months ago. Matt Bottomley, a senior executive at Canaccord Genuity Corp, gives his analysis in an interview with the Financial Post:“I think it will be a race to the bottom. But not only that. We’ll have to reposition the market. The problem is that we don’t have enough retail infrastructure and online product forms to attract people who buy from illegal channels,” says the expert.
Too limited a distribution network?
More sales outlets distributing less potent, less harmful and, above all, less expensive ganja – that’s what the players in the green sector are proposing to get out of the rut. An ideal proposal that requires only one green light: that of the provinces. While the Trudeau government has legalized weed, it’s up to each region (Ontario, Quebec, Newfoundland, etc.) to regulate the distribution of ganja. And therefore to decide on the number of sales outlets and the accessibility of marie-jeanne, whether in terms of age or quantity.
Restrictions that are often too onerous which, in addition to reducing the scope for development of a fast-growing business, still pushes too many consumers towards the black market.
