Canada racks up 400-tonne cannabis mountain after production binge

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Pot price falls and inventories grow as legal and illicit markets compete for customers Legal sales for the recreational and medical cannabis markets in Canada are expected to total $1.9bn this year, lagging behind illicit sales worth $2.3bn © Bloomberg Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Save Gregory Meyer in New York NOVEMBER 23 2019Print this page93 Warehouses in Canada are piled high with unsold marijuana after cannabis producers overestimated demand for the drug, which was legalised a year ago. Across the country, cannabis inventories came to almost 400 tonnes at the end of August, enough to cover two-and-a-half years of demand, according to the latest government data. Meanwhile the price of the drug has slumped as legal and illegal cannabis distributors grapple for market share. The stockpile suggests that one year after Canada became the first large economy to allow nationwide recreational use of cannabis, the industry has overestimated how much the country’s pot-smokers can burn through — and underestimated the illegal market’s ability to respond to competition. “There is a huge surplus of cannabis just for domestic demand,” said Matt Bottomley, analyst at Canaccord Genuity. Canopy Growth, a company listed in Toronto under the ticker WEED, said it harvested 40,570kg and wrote down C$15.9m ($12m) worth of inventory in the three months to the end of September. Aurora Cannabis, a competitor, reaped 41,436kg. Each company’s production alone was enough to meet the entire nation’s legal recreational demand, according to Cannabis Benchmarks, a data group. The excess production and the battle with the illicit market are feeding through to prices. Cronos Group, another Toronto-listed producer, disclosed it sold dry cannabis for C$3.58 per gramme in September, down more than one-third from the start of the year. “The consumption of cannabis is not keeping pace with the accelerated growth in kilogrammes being harvested,” said Cannabis Benchmarks. Investors flocked to shares of local pot producers such as Canopy, Aurora, Cronos Group and Tilray as Canada was legalising the drug, but customers are proving loyal to the illegal market. Analysts ArcView and BDS Analytics expect the size of the legal market to triple in the next five years, which would take at least $1bn in share away from street drug dealers. For now, though, legal sales for the recreational and medical markets will total $1.9bn this year, analysts estimate, lagging behind the $2.3bn in illicit sales. Legal distribution channels have been slow to develop, as they are tightly constrained by provincial governments. Ontario, the most populous province with 14.5m people, is served by only 24 stores. Its premier Doug Ford said this week the province was seeking to scrap its lottery for retail pot licences, a move that could allow more stores to open, Canadian press reported. “Since legalisation, there really haven’t been enough outlets for interested consumers to get products,” said Al Foreman, chief investment officer of Tuatara Capital, a $350m cannabis-focused fund manager.

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