Is Legalization or Covid to blame for the over production of cannabis?

September 21, 2021

2020 was a banner year for most companies

In our space, we were fortunate… it wasn’t this way for many other industries once Covid got ahold. Business thrived because of the misguided assumption that people would buy more so why not grow more (like alcohol).

Canadian cannabis firms have around 1.1 billion grams of harvested or processed cannabis sitting in storage. Around 95 per cent of that weed is considered ‘largely unsaleable’ because it has been spoiled by time, and because there's just too much existing supply to try and sell it.

Health Canada hasn’t stated why cannabis is being destroyed by producers, but industry sources cite various reasons for regular destruction, including:

  • Clogged sales channels, as provinces opened stores slowly in the early years of legalization.
  • Cannabis was produced before appropriate licenses had been secured, such as a sales license.
  • Low-quality production.
  • Production for testing only.
  • Producers stockpiling cannabis in 2019 for the launch of 2.0 products, such as edibles and most extracts, in 2020.

The pipeline is full in both Canada and the US and growers and LPs face a huge problem because of massive over production. Now many growers have simply shut down and LPs and growers alike are dumping at unheard of low prices, $300/lb for good product and $600/lb for great product is not uncommon.

Yes, it is true, there are supply chain problems getting raw materials especially if you import from China, which we all do, and this creates manufacturing challenges for all of us and increased costs.

The other thing to factor in is that the grey market still remains a Billion dollar industry. Anyone growing in the illicit market definitely had concerns pre-legalization, but the reality is it is alive and thriving.

Any ‘new’ (legal) industry is going to have growing pains; those that have been around the block will adjust and survive. The industry may appear to be in a bit of a holding pattern, but as the pipeline empties there will always be room for high quality, safely grown product on both sides of the fence (legal and the grey market).

Sources:

https://mjbizdaily.com/canadian-producers-destroyed-over-500-tons-of-cannabis-since-2018/

https://www.dailymail.co.uk/news/article-9874785/Canadas-legalized-weed-business-flops-1-1-BILLION-gram-marijuana-mountain-sold.html

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