How to analyze the cannabis oversupply in Canada

3 mins read

The Cannabis Canada Spot Index was assessed at C$5.75 per gram this week, down 1.0% from last week’s C$5.81 per gram. This week’s price equates to US$2,083 per pound at the current exchange rate.

Each week, Business of Cannabis delivers a series of insights from our partners at Cannabis Benchmarks®.

This week, Cannabis Benchmarks touched on the significant problems resulting from the monthly supply and demand mismatch in the Canadian cannabis market. With Canada’s regulated market open for business for over two years now, operators can examine trends in supply and demand, and begin to make more informed decisions that should help move the market closer to equilibrium.

Demand for cannabis sold through legal channels has been growing at a rapid rate, as the regulated market is both attracting new customers and drawing in existing consumers who previously purchased from illicit sources. However, the increased demand has not to this point been nearly sufficient to absorb the staggering, and still-growing, supplies generated by cultivators.

The mismatch between production and consumption has resulted in a huge oversupply of both packaged (finished) and unpackaged (unfinished) products across the country.

Statistics Canada’s most recent data for November 2020 shows unpackaged and packaged inventory ballooning to 1,165,725 kg, representing over 38 months of supply at current demand levels.

A combination of four factors needs to occur to get this market in balance:

  1. Cultivators need to continue to aggressively write off inventory, especially older inventory that has degraded in quality.
  2. Cultivators need to continue to take cultivation capacity offline.
  3. Wholesale and retail prices in the legal market need to continue to drop to levels competitive with or lower than those in the illegal market, in order to bring the demand being supplied currently by illicit sellers into the licensed system.
  4. Cultivators need to gauge the growth in demand and right-size their operations until  supply and demand reaches an equilibrium.

Now that we have a clearer understanding of the dynamics of the Canadian cannabis market, market participants need to assess the current and future landscape, and adjust the scale of their operations to match more informed demand growth projections.

Source: Canada Cannabis Spot IndexCannabis Benchmarks



Previous Story

How to think about cannabis' impact on alcohol sales

Next Story

A look at licensed growing area in Canada

0 $0.00