Canada’s cannabis shortages could continue intermittently through 2020, according to insiders

Thestar.com
November 8, 2018
Perrin Grauer

The cannabis shortages currently plaguing many Canadian provinces are driven by regulatory and production missteps, both predictable and inevitable, according to industry insiders.

And despite some emerging clarity around how Canada wound up with empty shelves in the first weeks of legalization, shortages are unlikely to become a thing of the past quite yet, according to Khurram Malik, CEO of Canadian cannabis company Biome Grow Inc.

Many cannabis producers may have enough weed to bust short-term shortages, say industry experts, but red tape and stringent production standards mean empty shelves may be a perennial problem for years to come.

“There’s going to be a supply shortage on and off for over a year to come,” Malik told StarMetro in an interview. “This was very predictable. We did see it coming, but not to this extent.”

More than half of New Brunswick’s cannabis stores were closed this week due to product shortfalls, while Winnipeg-based Delta 9 Cannabis Inc. was down to dried buds at the end of October after finding itself unable to obtain a restock of cannabinoid capsules or oils. In British Columbia, meanwhile, the B.C. Liquor Distribution Board said in October that cannabis producers have yet to meet their total product commitments to the provincial government.

And these problems have been brewing for a long while, said Malik. This is due in part to the tough standards imposed by Health Canada on companies looking to break into the production market, he said.

Malik said he suspects many licensed producers (LPs) have stockpiled cannabis products just sitting in their vaults --enough, he suggested, to overcome the current early-days shortages impacting provincial markets. But getting that product out of the vaults and onto store shelves has likely been held up by red tape, he said, attributing such hiccups to the inevitable growing pains of a brand new sector.

But those logistical issues are compounded by heel-dragging on Health Canada’s part in regards to providing enough licenses to cannabis producers to ensure sufficient legal weed could be grown to serve a customer base energized by the “euphoria” of legalization. While the federal agency did ramp up licensing approvals in the past year, such an increase should have been undertaken much earlier, Malik said.

Canadian cannabis growers, he noted, are held to a far higher standard than most other growers in international jurisdictions. While Colorado and California, for instance, faced their own shortages after legalization, those problems had more to do with how quickly the market went legitimate following licensees being approved. There was just no time for those growers to get on top of their game, Malik said. For that reason, the challenges those markets faced provide little insight into how Canada’s shortages will ultimately shake out.

Last but not least, there may be problems on the production side in terms of the ability of LPs to get to harvest quickly and efficiently enough. Many LPs --Malik estimated more than nine in ten --rely far too heavily on human labour, he said. This is a holdover from the days when LPs only grew for the medical market, he suggested, when profit margins were wider and market diversity was far slimmer.

Before legalization, he said, a gram of weed could be grown by an LP for around $2.50, and sold for $7 or more. There were also simply fewer customers to serve. Now that the government takes its share and marks up either to a wholesaler or to a customer through its own retailer, LPs are making less money while being tasked with producing more weed on a regular basis.

This, he said, makes old models centred around human workers unsustainable. And all of those producers whose facilities were built to run on this model are facing a rude awakening, he added.

Malik said he believes automation is the only way for the cannabis industry to achieve reliable, consistent results at an affordable rate. This, he said, is no different than the systems any large-scale agricultural producer has had to adopt to survive. He points to the facilities Biome helps set up as an example.

“When the lights come on, we don’t spend a year or two years trying to figure out how to grow in our facilities,” he said. “They hum right away. And the reason for that is we automate the heck out of our buildings and basically (take) the human being out of the equation as much as we possibly can.”

And while that solution may not sound appealing to some growers or consumers, there is simply no way for a company to survive in a sector like cannabis without moving in that direction, he said.

Matt Maurer, a partner at Torkin Manes Barristers and Solicitors and vice chair of the firm’s Cannabis Law Group, also expressed little surprise at the fates befalling Canadian cannabis retailers.

“I think it’s highly predictable,” Maurer told StarMetro. “It just seems so obvious that there was going to be really significant demand.”

So obvious, in fact, that Maurer believes some governments ought to be owning more of the blame than they currently are. The province of Ontario, he said, has been pointing the finger at Canada Post and, to some degree, at producers. But supply and delivery aren’t the only problems facing the industry, he added.

Maurer said he’d spoken to an Ontario resident recently who had placed an online cannabis order within an hour of legalization, yet only received their package Tuesday --three weeks later.

Other reports, such as consumers who have had their deliveries cancelled or disappear without followup from the provincial retailer, have also begun to pile up, Maurer said. And all of these accounts suggest service-side problems as much as anything else, he added.

With all of this in mind, it’s unlikely, he said, that things will begin to get any better in the near future. And Malik forecasted the same fate for the nascent industry.

“These shortages should ease up in the next couple weeks and then (return) again,” he said. “I think it’ll finally normalize in 2020, go from a shortage to a surplus … But until then, if you’re opening up a dispensary it’s a bit of a dicey prospect. You may have empty store shelves for a while.”