The End to Canada's Cannabis Drought May Be Much More Dramatic Than Expected

There are literally hundreds of applications for cannabis cultivation licenses awaiting approval from Health Canada. And if they all get put through, it would mean way more weed than Canada would ever need.

At the end of 2018 there were nearly 840 applications pending in a Health Canada backlog to open new cannabis cultivation sites. And while the country is currently facing down a huge supply chain issue, some analysts fear that licensing all those new sites wouldn't actually make things any better.

If all of those pending applications are granted cultivation licenses, that would bring Canada's total count of legal commercial cannabis producers to just under 1,000. That's far more than the country could ever support, argues Beacon Securities analyst Russell Stanley. And even if no new licenses are granted, the 145 currently operational growing sites are likely to be generating oversupply within the next two to five years.

"Within Canada there are over 130 licensed producers, and we don't need 130 of anything for the Canadian market on its own," Stanley told Marijuana Business Daily.  "There has to be a reckoning. It's a when and not an if."

A number of US states which have legalized recreational marijuana have also been battling with cannabis oversupply in the past few years. Oregon has been hit particularly hard, as the average price of a gram of legal weed dropped 50 percent between 2015 and 2018. These price drops associated with overproduction of cannabis could effectively see the continuation of many of the problems the Canadian market is currently seeing, namely the shrinking of competition and the removal of small- and medium-sized businesses from the industry.

However, some of these businesses may be able to stay afloat if global cannabis trade opens up within the next few years. The legalization of marijuana edibles in Canada this coming October will also present new opportunities, though it is doubtful that will be enough to float 1,000 cultivators.

So while a potential oversupply of legal weed would be great for consumers in the short term, the costs to the industry could be pretty big in the long run.

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