Are oils the solution to the looming cannabis shortage in Canada?

Due to a new distribution network that won’t be fully ready once legalization comes, and limited inventory in the vaults of the producers, Canada is bound to feel the shortage of cannabis this summer.

In just over a month, the Canadian Senate should conduct the third reading of Bill-C-45, The Cannabis Act, which if passes will be forwarded to two chambers in the House of Commons.

Once the two chambers agree upon the text and the phrasing of the bill, it will become law and soon after legal sales will also begin.

However, things might not go all smoothly for the people involved in the process of maintaining a balanced system in place, as there are strong indications that the market will be hit with a serious shortage in the first few months of sales.

The federal government has allowed the provinces to form a distribution network for cannabis amongst themselves, but we haven’t heard much news about this, which might indicate that the system won’t be ready once the sales start.

In addition to that, several of the biggest provinces have rather different sales systems already set in motion, ranging from a single government-run entity to private-run organizations.

So, with this very specific situation in mind, what could Canada do in order to prevent a shortage of cannabis and still maximize profits? Can converting dried flower to oils somehow help the dire situation in Canada as it once did in Oregon?

Expansion necessary

Nearly every licensed producer will suffer this fate except for maybe Canopy Growth which is rapidly developing several production facilities across the country and will be one of the only producers with a foothold in most provinces.

Canadian producers will also have to come up with a way to gap the large initial imbalance between supply and demand, all the while keeping up with the demand in the medical market.

This March, Health Canada reported inventories held by LPs as of December 31st at ~39 million grams of dried flower, and ~11 million grams of oils for a total of 50 million grams.

The projected domestic cannabis demand is expected to reach 1 million kilograms, which is 1 billion grams, about 20 times what Health Canada reported LPs had in their inventory in March.

So, there will be a definite shortage of cannabis flower in the first few months, or perhaps even years, as even the major Canadian producers are not yet on track to make those kinds of numbers.

But, soon enough just two producers will be able to produce numbers equal to the projected demand, as Canopy Growth and Aurora Cannabis both have large facilities in the making.

In fact, Canopy and Aurora together will be able to produce around 1 billion grams in a year or so, once Aurora Sky, the 800,000 square feet facility in Edmonton comes online.

Here’s what production numbers will probably look like once these facilities are finished:

  • Canopy Growth:~500,000 kg
  • Aurora Cannabis + MedReleaf: ~570,000 kg
  • Total of ~1.1 million kilograms

This number is only going to go up, as MedReleaf (which is now part of Aurora Cannabis) also has an unused 95-acre plot of land adjacent to its Exeter facility in Ontario which could yield another 40,000 kg yearly.

This would bring the total production of the two cannabis giants at over 1.1 million kilograms yearly.

But, that leaves out a big part of the market, the one that’s not in Canada — these two companies already made significant supply deals with foreign companies which might weigh them down a bit.

So, it is safe to say that by 2019 or 2020 Canada will have a well-supplied market, and the distribution network should be well figured out by that point.

However, the looming shortage is inevitable and will hit most Canadians hard as they probably won’t see it coming, even though we’ve seen it happen in several places already.

To answer our question from the start, simply extracting dried flower into oils just won’t do it for Canada, as it is facing a different situation from that in Oregon.

After all, Oregon was in a much different position from the one Canada is in, since Oregon actually had an abundance of dried flower with no options to export it, while Canada can export its cannabis flower.

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