Since adult-use cannabis consumption became legal in Canada about four years ago, licensed producers have been destroying an increasing amount of the drug each year. The record amount was destroyed in 2021 and was far higher than the amount of cannabis sold that year.
The Canadian recreational cannabis market continues to struggle with oversupply issues as mass-producers expected a much faster ramp-up in consumption than the reality of demand. What’s worse is this problem isn’t going away anytime soon because Canada isn’t seeing enough growth in demand for the amount of product being produced.
Growers Destroy Vast Amounts Due To Oversupply
The supply and demand economics for cannabis are easy enough to predict. While the demand for cannabis is growing, it’s not growing fast enough to fill the gap between supply and demand.
In Canada, growers are currently destroying record amounts of cannabis as they try to control production levels in order to avoid flooding or undersupplying the market. Companies like Canopy Growth Corp., Aurora Cannabis Inc., Aphria Inc., Organigram Holdings Inc., Cronos Group Incorporated, and Supreme Pharmaceuticals Inc., have had no choice but to destroy thousands of kilograms worth of product because they cannot sell it through legal channels.
Canada’s Cannabis industry has plenty of supply but not enough demand. The country has been home to some of the world’s largest cannabis companies since the early 2000s and is now expected to produce enough marijuana for at least three years worth of supply.
Analysts Say Growth Demand Will Stabilize
Both analysts and industry leaders are optimistic Canada will be able to handle the growth in demand, but they acknowledge the country’s struggles are real.
“The fact is that there’s an incredible amount of product available domestically, at a low price point,” said Nikhil Kumar, senior credit analyst at M&G Investments (MGI), a London-based investment company with over $584 billion in assets under management. “But Canadian producers have not been able to capitalize on this opportunity because their supply chains are not as developed as those in U.S. jurisdictions.”
Kumar believes Canadians need time for these supply chains to develop before prices increase substantially or become profitable for some companies, and he isn’t alone.
The Canadian Cannabis industry is expected to grow by an average of 23% each year until 2030. While this growth sounds promising, it’s important to note the industry isn’t growing fast enough to meet the demands of those who want cannabis products.
Now, you might be thinking “of course there’s not enough supply for everyone! That’s why I’m paying so much for it.” While you’re not entirely wrong, there are other factors at play as well, namely supply and demand economics.
Takeaway: Canadians need to be patient when it comes to access and affordability because growers are working hard behind the scenes (and sometimes even risking criminal charges by selling off stocks illegally) so they can keep up with demand from consumers.
As you can see, the demand for cannabis has skyrocketed over the past few years. However, growers still have not figured out how best to meet this demand and supply their products. Many people are blaming this issue on poor supply and demand economics as well as lack of infrastructure. It’s a tricky situation especially when it comes to legal marijuana sales but hopefully these issues will be resolved soon so everyone can get back to business as usual!
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