Since recreational cannabis was legalized on October 17th, 2018, industry professionals have been analyzing the initial numbers to determine the long-term viability of such a new and much-anticipated industry. With cannabis edibles, extracts, and topicals set to hit the market by the end of 2019, it seems that there is ample room for growth and appeal for a wider range of consumers. But has supply kept up with demand? And what exactly do current production and sales numbers say about the future of the industry? Let’s look at the data to see how the markets have developed thus far, and why Canada will need more cannabis licence holders going forward.
Cannabis Supply & Demand
The Cannabis Act grants the authority to track cannabis supply and demand to the Minister of Border Security and Organized Crime Reduction. This, in turn, led to the creation of the Cannabis Tracking System, which collects data from licenced producers on a monthly basis. As licenced producers ramp up production to meet demand, analysts are optimistic that cannabis shortages will inevitably dissipate over time. Currently, the shortages are partly due to high rates of unfinished cannabis products.
According to the collected data, the first month of legalization saw 6,346 kilograms of dried cannabis sold by licenced retailers. In the same month, producers reported approximately 18,481 kilograms of finished, dried cannabis inventory, and nearly 100,000 kilograms of unfinished inventory. Over the span of 8 months, finished inventory more than doubled, reaching 39,891 kilograms by May of 2019. Unfinished inventory increased similarly, reaching 224,037 kilograms in the same time span. By the end of May, sales increased to 9,495 kilograms.
To put these numbers in perspective, cannabis sales increased by 49.62%, while finished and unfinished inventory increased by 115.84% and 131.39%, respectively. So, what do these numbers mean? First and foremost, it shows that despite promising sales and high demand in the early days of legalization, companies are foregoing increased revenue now in favor of stockpiling unfinished inventory for the future.
This has generally not held true with cannabis oil production, as licenced producers have worked to push these products to market faster. In October of 2018, licenced producers recorded 29,511 litres of finished cannabis oil inventory, and just 21,317 of unfinished inventory. This same month, retailers recorded sales of 6,241 litres. By May of 2019, finished inventory reached 85,639 litres, while unfinished inventory increased to 42,350 litres. Sales also increased accordingly, with 9,773 litres sold in the same month.
The trends in cannabis oil supply and demand have been markedly different from dried cannabis. In the same 8-month time span, sales increased by 56.59%. Litres of finished inventory increased by 190.19%, while unfinished inventory increased by just 98.66%. When compared to the same production and sales numbers of dried cannabis, this shows that licenced producers have more interest in getting alternative cannabis products like cannabis oil to market quickly. Sales of cannabis oil have increased at a higher rate, and finished inventory has increased drastically to meet this demand.
Market Projections
According to a report by the Arcview Group and BDS Analytics, the Canadian cannabis industry is set to grow from $569 million in 2018 to $5.2 billion by 2024. While this projection is impressive, it may be difficult to see where this growth will come from, given the current supply and demand data. However, the Canadian cannabis industry is still very young, and larger producers and retailers are still implementing a conservative strategy, particularly in anticipation of the changing laws in October.
Cannabis edibles remain one of the most profitable sides of the U.S. legal cannabis industry, and analysts predict similar results for Canadian markets. In October, cannabis edibles, extracts, and topicals will be legal to sell in Canada, and many producers are stockpiling their supply in anticipation of these changes. New research, increased cultivation, and varied marketing strategies will shake up the industry once these changes take effect. In any case, sales are projected to increase exponentially, opening the door for new licenced producers to enter the marketplace.
The Need For Cannabis Licence Holders
While the coming changes to cannabis legalization will require more licence holders to meet high demand, this is not the only reason that Canada needs more licenced producers. Experts predict that the shortage of cannabis products could continue for years, despite increased production. The demand for cannabis in all forms is simply too high for the current supply, and many retailers sit with empty shelves as a result.
Additionally, licenced producers and market analysts predict that traditional dried cannabis will only make up 10-20% of the market share within the next decade. This speculation means that alternative cannabis products warrant increased attention. For the moment, many licenced producers are playing a waiting game, as the new regulations regarding alternative cannabis products will not be finalized until mid-October. However, if the Canadian market projections are correct, and alternative cannabis products like edibles mirror the success of the U.S. market, then there will be an increased need for licenced producers for years to come.
Become A Cannabis Licence Holder
Now is the perfect time for new licenced producers to enter the market. Demand is at an all-time high, while larger manufacturers continue to produce unfinished inventory. Current producers are hesitant to make any major changes to their distribution strategy until the effects of cannabis edibles hit the markets. Nonetheless, getting started with research, production, and meeting the currently high demand for finished cannabis products is vitally important in order to take advantage of a fast-growing industry. However, before you can become a producer or retailer, you will need the proper licensing.
Cultivation Licence
Even with the stockpiling of unfinished inventory, the demand for cannabis products is high enough to justify drastically increased production. In order to do this, you will need the proper cultivation licence. There are two different forms of cultivation licence you may need, depending on the size and scope of your business: Micro-Cultivation Licence and Standard Cultivation Licence. A Micro-Cultivation Licence allows for no more than 200 square meters of canopy space, while a Standard Cultivation Licence permits larger grow facilities.
Processing Licence
In order to take advantage of the demand for alternative cannabis products like CBD oil, edibles, extracts, and topicals, you will need to hold either the Micro-Processing Licence or the Standard Processing Licence. Much like the Micro-Cultivation Licence, the Micro-Processing Licence puts limits on the amount of product that your business can manage, while the Standard Processing Licence has fewer limitations and allows for greater expansion. With the Micro-Processing Licence, your business can handle no more than 600 kilograms of dried cannabis (or the equivalent) each year.
Research Licence
As cannabis regulations increase, there will be an increased need for new products and materials. A Research and Development Licence grants your business the ability to run tests on cannabis plants, dried cannabis, and a variety of cannabis derivatives.
Learn More About Getting A Cannabis Licence
At Cannabis Licence Experts, we provide you with the guidance to plan your business, acquire funding, navigate the legal requirements, and acquire the right licence for your business. To learn more about starting or expanding your cannabis business, as well as becoming a licenced producer, consult the experts at CLE today.
