Michael Armstrong is an associate professor in the Goodman School of Business at Brock University.
Federal-provincial feuding over cannabis reignited last week. Ontario Finance Minister Vic Fedeli complained of national product shortages. Meanwhile, federal Border Security Minister Bill Blair stood by his claim cannabis supplies are sufficient. In reality, Ottawa’s own data support Mr. Fedeli. But they also show supplies are finally improving.
Ontario is clearly short of cannabis, despite being six months into legalization. That’s why it’s initially licensing only 25 stores. And why it’s promising each one just 25 kilograms of product weekly.
Ontario’s shortage isn’t unique. Statistics Canada data show only one-fifth of national cannabis spending is legal. Even Canada Border Services Agency reportedly blames shortages for encouraging illegal imports.
Despite all that, Health Canada denies any national shortage. It instead tweets about increasing cannabis inventories and producer sites.
Mr. Blair’s stand as lead minister for Cannabis Act implementation is similar. On Apr. 10, his office again insisted cannabis supplies “exceed existing demand.”
Mr. Fedeli isn’t buying that. His budget on Apr. 11 blamed a “national supply shortage” for creating “widespread business uncertainty.” He later called Ottawa’s cannabis rollout a “failure” and “blunder.”
Those shortage criticisms are justified. Health Canada’s own data have consistently indicated large product shortages.
Consider the department’s February sales report. Combined recreational and medical sales of cannabis oil fell 9 per cent to 7,244 litres. Considering February is shorter than January, it’s plausible daily sales were effectively unchanged.
Meanwhile, estimated oil finished goods processing declined to 13,753 litres. That’s probably not concerning, as January processing had been unusually high. Ample inventories kept distributors well supplied.
Dry (smokeable) cannabis sales likewise dropped 9 per cent, hitting 6,671 kg. Again, per-day sales were perhaps flat. But the lack of growth still disappoints, as recreational users much prefer dry products.
Fortunately, estimated dry product processing climbed 16 per cent to 10,249 kg. That’s the second monthly increase after December’s sharp slump.
That increase presumably enabled subsequent sales growth. Rough guesstimates for March might put oil sales around 7,900 litres and dry sales above 8,000 kg. That could push the month’s retail recreational sales to $60-million.
Nonetheless, shortages remain substantial. Health Canada’s demand estimate works out to about 77,000 kg monthly. From November to February, dry and oil sales together have covered just one-fifth of that. The implied consumer-level monthly shortage has been roughly 62,000 kg.
Meanwhile, finished goods processing rates have hovered around one-third of national demand. So, from the processors’ perspective, monthly shortages have been around 53,000 kg.
Mr. Fedeli is clearly right about shortages. But they aren’t all Ottawa’s fault. Media reports suggest widespread operational problems among producers. (Grand visions but troubled implementations: Anyone remember the dot-com boom?)
Where the federal government has blundered is in denying the shortages exist. Mr. Blair talks about sufficient supplies that clearly aren’t. Health Canada advertises inventory ratios that look impressive but mean little.
Such misleading spin helps no one. Consumers, retailers and investors are all wondering when supplies will improve. Ottawa shouldn’t leave them in the dark.
Instead, Health Minister Ginette Petitpas Taylor should shed some light. Her department could start publishing the industry’s monthly harvesting and processing totals.
That transparency would show everyone how quickly, or not, output is increasing.
It’s not like retailers don’t face enough other challenges, such as the black market’s price advantage. Statscan’s Apr. 10 report estimated unlicensed dry cannabis averaged $6.79 a gram before legalization. That declined to $6.51 in late 2018 and $6.28 in early 2019.
Meanwhile, the data show the legal recreational average rose from $9.89 to $10.52. My own check of Ontario’s online prices recently found the average offering was $12.34.
And it’s not as if the federal Liberals don’t have bigger challenges themselves, such as the coming election. They can reasonably claim legalization as a policy success despite its imperfections. But if they keep hiding those imperfections, their rival’s accusations of blundering will seem increasingly apt.