Last week, Health Canada posted cannabis industry data for March that finally included monthly production figures. Those preliminary numbers confirm Canada still has massive product shortages, despite some improvements. But the shortages differ greatly between dry cannabis and cannabis oil, and so require different solutions.
Health Canada said recreational and medical sales in March totalled 7,918 litres of cannabis oil and 7,627 kg of dry cannabis. Those are (just barely) the highest monthly volumes since legalization took effect.
Also last week, Statistics Canada reported March recreational sales were worth $60.5-million. That too is the strongest result so far.
But both reports imply legal sales still only cover about one-fifth of total consumption. (Not nearly 50 per cent, as federal Border Security minister Bill Blair reportedly claimed last week.) The rest remains with black markets.
To see why, we need to separate the dry and oil categories.
Health Canada last fall estimated Canada’s total cannabis demand at 926,000 kg annually. Meanwhile, Statcan’s 2018 fourth quarter cannabis survey said smoking is the preferred consumption method for 72.5 per cent of users. Together, those estimates imply monthly dry cannabis demand is roughly 56,000 kg.
The remaining 27.5 per cent of users prefer vaping, edibles, or “other” methods; the latter includes the ingestible oils that medical users like. That suggests monthly oil-related product demand equates to some 21,000 litres.
This rough breakdown provides perspective for the legal industry’s status.
For dry products, monthly sales from November onward have averaged 7,299 kg. That was only enough to meet 13 per cent of potential demand.
But retailers couldn’t sell more because they didn’t get more. From November to February, producers processed only enough finished goods to cover 19 per cent of dry consumption. And they apparently shipped only enough for 15 per cent; December’s shipments didn’t even match sales.
(And yet throughout this period, Health Canada and federal Border Security minister Bill Blair repeatedly assured us “supply is adequate to meet demand” and there was no “national shortage of supply of cannabis”.)
In March, fortunately, dry processing grew by more than one-fifth, while shipments apparently jumped even more. But processing and shipping remain the main bottlenecks for dry product sales. Producers simply must continue boosting those rates.
The oil situation is different. Since November, legal sales have captured a respectable 36 per cent of oil-related demand. But there’s been little upward trend despite processing and shipping rates being almost twice those of sales. Similarly, finished goods inventories have remained generous.
This suggests there’s no overall shortage of existing ingestible oils, despite some individual product shortfalls. This fits with anecdotal reports of retailers often having oil in stock after running out of dry.
Instead, the shortage involves absent products: cannabis edibles and vape-able oils. With two-thirds of product forms still being illegal, the industry is lucky to capture one-third of oil-related demand. No big sales increases seem likely until the federal government legalizes those products.
But in the meantime, producers and retailers should view stagnant oil sales as an opportunity to learn and improve.
For example, oils high in CBD apparently sell out quickly, as they’re popular among medical and “wellness” users. Producers should adjust their production mix accordingly.
High legal prices, insufficient store numbers, or federal advertising and packaging rules might also be hindering oil sales. How price sensitive are cannabis consumers? How important is shopping convenience? Which federal regulations most need adjusting?
The industry will face these questions in the larger dry cannabis category too, once supplies improve. It’d be wise to start answering them now.
And the March data show supplies are gradually improving. That explains why Alberta confidently licensed another 26 stores in April. And why Quebec extended its outlets’ hours in May.
The improvements also bode well for Ontario. Its online-only sales have been slowing since legalization, with first quarter 2019 results being one-sixth lower than the previous quarter’s. It’s depending on its newly opened retailers to reverse that trend.
Michael J. Armstrong is an associate professor in the Goodman School of Business at Brock University