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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