The Strategist

Canadian cannabis industry is crashing down due to weak demand

11/25/2019 - 09:03

Cannabis stocks in Canada reached nearly 400 tons. This is enough to cover demand for the next 2.5 years. The reason for the excess was that manufacturers overestimated the demand for cannabis, which the country legalized last year. As a result, the prices fell sharply.

Coastal Elite
Coastal Elite
Warehouses in Canada were littered with unsold cannabis after the country legalized storage and use of marijuana for recreational purposes. According to the Financial Times, hemp stocks reached almost 400 tons, and this is enough to cover demand for the next 2.5 years.

Canada was the first large economy to allow cannabis nationwide, but the industry underestimated the ability of the illegal market to respond to competition and overestimated consumer demand, FT emphasizes. According to Canaccord Genuity analyst Matt Bottomley, there is an excess of cannabis intended only for domestic demand.

Toronto's Canopy Growth said it had hoarded 40,570 kilograms of hemp and written off $ 12 million worth of stocks for the quarter ending in late September. Its competitor Aurora Cannabis collected 41,436 kg of hemp. According to Cannabis Benchmarks, with such a production volume, each of these companies could single-handedly meet the current demand for marijuana in the country.

Due to an excess of goods, the price of marijuana fell sharply, as legal and illegal suppliers are fighting for their market share, the newspaper notes. The Cronos Group, another Toronto-based producer, claims that it sold dry cannabis in September at a price of CAD 3.58 per gram, a third cheaper than at the beginning of the year. “Cannabis consumption is not keeping pace with the increase in the number of kilograms produced,” says Cannabis Benchmarks.

When Canada legalized cannabis, investors became interested in stocks from manufacturers such as Canopy, Aurora, Cronos Group and Tilray. But consumers are loyal to the illegal market, writes FT. According to experts from ArcView and BDS Analytics, legal sales of marijuana for recreational and medical markets this year will amount to $ 1.9 billion, illegal - $ 2.3 billion. Analysts predict that the legal market will triple in the next five years. This will rob street vendors of marijuana worth at least $ 1 billion.

Among the reasons that the legal sales channels are still developing slowly, the newspaper calls the strict restrictions of individual Canadian provinces. For example, there are only 24 stores where you can buy cannabis in Ontario, the most populous province, where 14.5 million people live.