Cannabis Glut in Canada
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Case Code: ECON090 Case Length: 16 Pages Period: 2018-2020 Pub Date: 2020 Teaching Note: Available |
Price: Rs.500 Organization : - Industry : - Countries : Canada Themes: Micro Economics, Pricing, Global Economy, Macroeconomic Environment |
Abstract Case Intro 1 Excerpts
Excerpts
Background
In Canada, cannabis was one of the most widely used substances, followed by hallucinogens, cocaine/crack, and ecstasy. Almost 50% of Canadians had used it at some point or the other in their lifetime. The country's regulators refrained from imposing any strict cultivation cap or acreage limit on licensed growers. They added a number of measures to establish a regulated market, which would be safer, more accessible, and more economically viable. Canada had a comprehensive license policy and it took a long time to complete the process. "The amount of time to obtain a license to grow marijuana in Canada’s legal market was excessive with some cultivators waiting months or even a year. Once a grower obtained a cultivation license, it needed to produce two full crops, have them tested, get its sales software audited, and apply for a sales license, which could take another year," a Cannabiz media article stated...
From Shortage to Surplus
After legalization of cannabis, Canadian provinces continued to approve new licenses for cannabis producers and retailers. However, as the list of cultivation applicants continued to increase, the Canadian Government agency that oversaw the country’s federal health policy, Health Canada, was criticized for being slow in issuing licenses. According to Health Canada data, as many as 840 applicants were in the licensing pipeline as of December 31, 2018. Besides licensing problems, there were a number of other factors responsible for the apparent supply shortages, said Matt Maurer of Toronto-based Torkin Manes cannabis law group. "I don't think it is fair to put the blame solely on the federal government," he said, adding there could be issues getting the product from cannabis facilities onto shelves...
Challenges
After the legislation was passed, Canada became the biggest cannabis market in the world and was flooded with millions of kilos of pot. Hundreds of pot producers came up to take advantage of this opportunity, leading to a boom in pot stocks. Some top Canadian pot producers like Aurora Cannabis, Canopy Growth, and the Cronos Group saw exciting performance in the spring of 2019. But after peaking, most pot stocks crashed by more than 50%. Many investors thought this as an opportunity to buy pot stocks cheap, expecting that they would soon recover...
Road Ahead
Analysts expected that cannabis insolvencies in Canada would continue to persist amid industry woes like oversupply issues and regulatory challenges. Cannabis oversupply, coupled with a lack of demand for production and processing facilities, would impact sales, creating more possibilities of shutdowns and writedowns, said Alan Brochstein, founder of cannabis-sector information provider 420 Investor...
Exhibits
Exhibit I: Average Quarterly Price of Cannabis in Canada
Exhibit II: Monthly Retail Sales of Legal Cannabis Stores in Canada
Exhibit III: Total Inventories and Sales – Dried Cannabis (Kilograms)
Exhibit IV: Quarterly Cannabis Price
Exhibit V: Province-wise Average Price of Cannabis in Canada
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