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Michael Armstrong is an associate professor in the Goodman School of Business at Brock University.

Figures released Friday by Health Canada showed that total volumes of legal cannabis sold in September grew just 2 per cent. The lacklustre results appear due to inadequate store coverage in the largest markets. That implies faster sales growth won’t resume until retailers expand in Ontario and Quebec.

All of September’s sales gains came from cannabis oils, whose volumes rose 5 per cent that month to 11,187 litres. Sales of both medical (4,882 litres) and recreational oils (6,305 litres) contributed to the growth.

By contrast, volumes of dry cannabis slipped 0.4 per cent to 12,922 kg. Of that, 11,707 kg was recreational product and 1,215 kg was medical.

Limited store growth is what likely limited September’s sales growth. Across Canada, the store count total was 12 per cent higher in September than in August, but the increase varied by province.

Alberta had 18 per cent more stores than it did a month before, but according to Statistics Canada earned only 4 per cent more revenues. That implies cannabis retailing there is becoming saturated. With roughly one store per 16,000 people already, the province began seeing diminishing returns to retail expansion.

Meanwhile, no new shops opened in the big markets of Ontario and Quebec. Not surprisingly, StatCan estimates their sales dropped 1 per cent. Those provinces need far more retailers if they want legal cannabis to succeed against illicit markets.

Quebec started to recognize this when its cannabis agency announced expansion plans in October. Since then, it has nearly doubled its outlets from 18 to 31, with more to come.

Ontario is catching up more belatedly. Last week its government finally announced it will start accepting retail license applications in January, though new shops won’t open until April.

That’s welcome news, but at least six months late.

Open this photo in gallery:

Staff of Organigram harvest their products inside the Organigram Inc operations facility in Moncton, NB on October 12, 2019.John Morris/The Globe and Mail

Health Canada data show that while producer output stalled during the winter, it began growing rapidly in April. That increasing supply let Alberta resume store licensing in spring.

Ontario could’ve done the same. Ontario Cannabis Store records reveal it had enough inventory for more stores already in March. But the province instead procrastinated until July, and then announced another limited license lottery.

In fact, Ontario's "open for business" Conservatives have been less open to cannabis businesses than were Alberta's recently defeated NDP.

Ontario would already have had some 900 stores in September if it had followed that prairie province's example. That could've made its sales nearly three times as high, boosting Canada's total by some 10,600 kg or 44 per cent.

But while Ontario has been too slow opening legal stores, it's been too quick closing illegal ones.

Premier Doug Ford famously complained about unlicensed dispensaries in April. And cities like Toronto and Hamilton have expended much effort raiding and barricading them.

But crackdowns waste police time and taxpayer money if legal alternatives aren't readily available. As long as unmet demand exists, illegal vendors simply reopen, sell from the street, or move online.

British Columbia's approach is more coordinated. It's been relatively patient with illegal vendors where legal options don't yet exist. But once licensed shops open in a community, police shut down dispensaries.

Retailing aside, the cannabis supply chain looks healthy enough to support future growth. For dry cannabis, finished production of 19,003 kg was well above sales rates. Finished inventories ended at 64,151 kg – enough for five months of sales.

Meanwhile, production volumes of finished oil fell to 10,554 litres, slightly below sales and the fourth monthly decline. The downward trend is welcome, given the industry’s bloated 102,060 litre inventory, equivalent to nine months of sales.

Unfinished inventories also improved. Oil supplies rose by 17 per cent to 62,711 litres as producers prepared for edibles production. And dry supplies fell 4 per cent to 316,515 kg as producers trimmed excess stockpiles. (Outdoor harvests might boost both numbers in next month’s report.)

And of course, more products are coming. As edibles arrive over the winter, they should enhance industry profit margins and government tax revenues. in the meantime, the November and December results might show temporary gains, if cannabis sales surge seasonally like alcohol sales do.

So, cannabis companies and investors might be short of gifts under the tree this season. But there’s still hope for the new year.

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