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While the
first year of Canadian legalization was marked by a shortage, it seems that the
trend is reversing. Canada now faces a cannabis surplus that threatens to drive
prices down while the emerging industry still struggles to be profitable.

Strong and steady growth
in stocks of unfinished products

Health
Canada qualifies stocks of unfinished products as “all dried cannabis in
inventories held by an approved grower or processor that is not packaged and
ready for a sale”. According to Health Canada data, this stock is growing
much faster than sales.

While the
first year of Canadian legalization was marked by a shortage, it seems that the
trend is reversing. Canada now faces a cannabis surplus that threatens to drive
prices down while the emerging industry still struggles to be profitable.

Health
Canada qualifies stocks of unfinished products as “all dried cannabis in
inventories held by an approved grower or processor that is not packaged and
ready for a sale”. According to Health Canada data, this stock is growing
much faster than sales.

Health Canada cannabis
stock

Between the
beginning of legalization and August 2019, the stock of unfinished products
more than tripled and has grown exponentially since March. The inventory of
finished products in August 2019 already represents 5 times the sales of the
month. The total stock represents 30 times the sales. If sales stagnate at
13,000 kilograms per month, this stock could supply the market for more than 2
years.

However,
the stock of unfinished products also includes manicure waste such as leaves
and stems. Moreover, despite slow growth, sales have been steadily increasing
since March 2019. They will, therefore, absorb part of the potential surplus.

A downward race?

For some
time now, Canada’s major producers have been working to expand their production
area to produce more at a lower cost and more competitive prices. Aurora
Cannabis, which currently has a production capacity of 150,000 kilos/year,
plans to increase to 500,000 kilos/year by 2020. Production capacity will equal
that of Canopy Growth, which is also on track to reach 500,000 kilos/year.

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