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Part of cannabis and small business and retail

Available now: Cannabis Professional, the authoritative e-mail newsletter tailored specifically for professionals in the rapidly evolving cannabis industry. Subscribe now.

Cannabis buds lay along a drying rack at the CannTrust Niagara Greenhouse Facility in Fenwick, Ont., on June 26, 2018.

Tijana Martin/The Canadian Press

Canada’s largest cannabis growers are behind on their first orders for recreational marijuana, a development that will leave consumers with less product and fewer choices come Oct. 17, multiple provincial distributors and retailers are warning.

Growers are experiencing issues such as lower-than-expected crop yields, a lack of packaging materials, problems with supply chains and product being sold elsewhere – such as to Canada’s medical market, or exported to other countries − contributing to what could be a messy start to Canada’s much-anticipated recreational cannabis system. The dearth of cannabis has left government-run distributors in at least four provinces scrambling to source more product and risks disrupting the launch of Canada’s new legal program.

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British Columbia says its four largest suppliers won’t meet shipping deadlines and are coming up short on their initial supply commitments. (The province declined to identify the four growers by name.) The B.C. Liquor Distribution Branch (BCLDB), the provincial distributor and retailer, says it initially planned to offer more than 150 strains of cannabis. But supply problems mean that it now expects to have only half that variety available in its online store and one government-run retail outlet in Kamloops later this month.

Nova Scotia says there will be less inventory and variety than planned in its 12 stores. Manitoba is anticipating “less product than requested.” Quebec is also bracing for the possibility of lower supply for its dozen initial retail locations and online shop.

Read more; Investment banks reap rewards with $2.8-billion in cannabis equity deals

Canada is launching a legal industry after 95 years of prohibition. The regulatory environment is complex and changing; brand new companies are having to develop supply chains from scratch in a matter of months; and small-scale producers are transitioning to football-field-size facilities, growing at an industrial scale with severe limitations on fertilizer and pesticide use.

Nobody knows how much legal cannabis Canadians are going to buy. Estimates have varied widely, from as much as 926,000 kilograms in the first year after legalization to as little as 370,000 kg a year by 2020. It’s not clear how many consumers will stop purchasing illicit product and move to the legal market. While growers are expanding aggressively to meet demand, the provincial warnings suggest that the industry isn’t on track yet.

“The volume of product will be considerably lower than what licensed producers (LPs) originally committed to providing,” the BCLDB said this week in an e-mailed statement to The Globe and Mail. “B.C. isn’t alone in this situation; shortages are expected to impact all jurisdictions across Canada, as some LPs look to opportunities in overseas markets.”

Cannabis growers have told the Nova Scotia Liquor Corp. “to expect less than what we ordered,” said spokeswoman Beverley Ware, adding that there will be fewer types of product on hand and less inventory.

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In Quebec, meanwhile, the Société des alcools du Québec (SAQ) says it might be facing supply problems as the industry goes through inevitable growing pains over the coming months.

"There’s a lot of demand and not a lot of offerings, so we’re monitoring the situation closely,” SAQ spokesman Mathieu Gaudreault said.

Still, the four provinces say they should have enough legal product available early on to satisfy consumer demand, even if selection is limited.

The problem would have been worse if more legal stores were opening this month. Ontario, for example, won’t have any storefronts open until next spring and will only be selling legal product online until then. Alberta, which is allowing private-sector retail, said it has issued 17 interim retail licences; the province is projecting to issue 250 retail licences for the first year.

No single issue is causing countrywide supply problems, the BCLDB says. It has been told by growers that crop yields have been lower than expected. Some producers are still waiting on sales licences from Health Canada; others have partly licensed facilities, with only a handful of grow rooms producing product that can be legally sold.

There’s also “insufficient supply of packaging materials (including excise stamps) and processing delays due to manual packaging and labelling processes,” the BCLDB said in its e-mail. Excise stamps are stickers attached to products to show federal taxes have been paid, similar to what’s seen on cigarette cartons.

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“At this point, it’s unknown how quickly LPs can resolve these issues,” the BCLDB said.

Jordan Sinclair, vice-president of communications for Canopy Growth Corp., Canada’s largest LP, said Canopy expects to meet its annual supply commitments to the provinces. “That said, we still need over 2 million square feet of production space licensed before our Canadian platform is at full capacity,” Mr. Sinclair said.

Canopy rival Aurora Cannabis Inc. is anticipating “delivering the overwhelming majority of the orders from all of the provinces,” said Cam Battley, Aurora’s chief corporate officer, noting that Aurora hasn’t had challenges with yield or applying excise stamps to product.

“The industry is rolling out a massive and complex new nationwide system with multiple product forms and packaging. It’s to be anticipated that there will be a few bumps in the road,” Mr. Battley added.

Other large producers Aphria Inc., Tilray Inc. and Hexo Corp. didn’t respond to requests for comment.

Governments are scouring the country for more cannabis, but supply is tight.

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“We’re being asked to supplement our orders. It’s bad news out there,” Eric Paul, chair of CannTrust Holdings Inc., said last week by phone. He added that CannTrust has already committed all of its available product. Logistical problems are making things worse.

“Part of the problem is getting those little excise stamps. We’re short of stickers and we can’t ship without them,” Mr. Paul added. A bottleneck is forming at the point where the adhesive is applied to the stamps, multiple sources say.

“That slows the industry down,” he said. “Everybody’s behind the eight ball.”

A spokesperson for the Ontario Cannabis Store (OCS) did not comment on initial supply concerns, but noted that the OCS “anticipates that overall supply and product assortment will build and broaden in the weeks following legalization.”

The Alberta Gaming, Liquor and Cannabis Commission was more upbeat: “For launch, we are not concerned," a spokesperson said. “What the coming months look like is an unknown for everyone as we just don’t know what the demand will be."

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