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Enduring the Cannabis Shortage

Legal cannabis shortages made headlines within the first weeks of legalization, and it’s still a pressing issue across Canada with only speculation on when it will end.

The shortage is affecting retailers across Canada. Puff Puff Pass Headshop, one of six private, legal retailers in Newfoundland was the first casualty as the store closed due to lack of supply. New Brunswick, with only 20 government-run stores laid off 60 retail employees, with shortages speculated as a cause. Ontario’s government-run online retailer faced immediate shortages and to pre-emptively avoid in-store shortages decided to issue only 25 private retail licences. Saskatchewan issued 51 retail store permits, but only 20 licences were issued as of March 12th.

Andrew Gordon, Senior Vice President, Strategic Partnerships & Community
at Kiaro, opened their first location in Saskatoon and explains their cautious approach: “As a result of the supply shortages we have paced our retail store roll-out to align itself with available supply so as not to impact customer experience; and have been extra diligent in building supply-chain resiliency by working hard to create strong relationships with both active and emerging supply partners, as well as the central distribution channels.”

Alberta had over 800 applications for retail stores in September 2018, but due to the shortage stopped issuing licences when only 65 were approved.

Our larger volume stores cannot keep a reasonable amount of inventory in stock due to high demand.

Fire & Flower has already established eight retail shops in Alberta. Rob Cherry, VP, general merchandise manager and head merchant laments the significant adverse effect the shortage has had on their stores. He shares, “While some of our locations in smaller communities are in decent shape inventory-wise, our larger volume stores cannot keep a reasonable amount of inventory in stock due to high demand. We are constantly frustrating our customers as a result, which of course is very disappointing and upsetting to us.”

In BC, the roll out of stores has been slow, despite the 445 paid applications received as of February 28, 2019, so the stores haven’t experienced the shortage.

The shortages in Canada are similar to what was seen when some US states legalized cannabis. Gordon explains, “These shortages are largely a result of supply chain infancy and provincial frameworks, which inadvertently cause bottlenecks.”

These shortages are largely a result of supply chain infancy.

The growing pains faced by the shortage of dried flower and oils will be felt for some time as licensed producers increase production to meet demand and as Health Canada licenses more producers. And in less than 7 months, edibles, concentrates, and topicals will enter the market. The demand for these product categories was immediately high in the US and we can expect the same when they’re legal in Canada. Gordon describes, “While delays can be difficult to endure, the tiered rollout of product categories is considerate to the community interests, and makes sense for the bandwidth of the regulators, the producers, and the retailers. The impact of the introduction of edibles, extracts, and topicals will be huge for the retail landscape. We believe the availability of these products will help bring those opposed to smoking into the industry and further normalize cannabis use. Moreover, the introduction of new product categories is essential to carry out the full purpose of the Cannabis Act, as it further destabilizes the illicit market where these products are readily available. Despite the market demand for these new products, we do expect flower sales to remain a large part of our business for the foreseeable future.”

Both Gordon and Cherry are optimistic for the short and long term. Gordon states, “We appreciate that this is an unprecedented development for our country, and we know regulators at all levels of government, as well as the producers across Canada, are working hard to meet the needs of stakeholders, so we are optimistic that we will see some improvement in the short term (6 -12 months). But ultimately, we expect it will take a few years for the supply chain to fully stabilize in order to produce the levels of consistency and quality retailers need to meet consumer expectations.”

Cherry agrees, “We expect to reach market equilibrium (in terms of supply equaling demand) in 12-18 months, and we expect the situation to improve gradually over the course of this year.”

Until then, retailers will need to manage customer expectations and carefully control their costs to overcome these short-term issues.