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Will Unfinished Inventory Help Supply Problems?

Unfinished inventory of cannabis has been growing since October 2018 and could be a solution to Canada’s supply problems.

BMO cannabis analysts determined “if some of the dated ‘unfinished inventory’ is ultimately determined to not be extraction-grade, then there would be a need for inventory write-downs.” If that product becomes available for sale, it could also cause an oversupply of cannabis.

Adrian Robinson, CEO of High Street Cannabis, says, “There is a good chance of potential oversupply, since as of March there was more than 150,000 kg of unfinished inventory—defined by regulators as cannabis that is not packaged, labelled or ready for sales—held by Canadian pot companies, according to Health Canada figures. [Editor’s Note: As of May 2019 that number has climbed to over 224,000 kg.] That is up from about 101,000 kg on October 17, 2018, the first day of legislation. However, there is also a chance inventories could potentially decline as new retail store openings ease the bottleneck for retail consumers. Licence holders are also preparing for Cannabis 2.0 where they will be converting biomass into oils, which will go into extracts, edibles, and derivatives—higher margin products—so the chance of oversupply is realistic, but may not be as dramatic as predicted in the BMO Report.”

Oversupply might also affect prices. Robinson warns, “An oversupply could affect a price drop. The latest data from Statistics Canada just confirmed our view that the Canadian domestic market will face the wall of supply in the coming quarters. This will potentially put downward pressure on pricing for Canadian companies as they rely almost entirely on the Canadian market for their revenue. The real question will be how dramatic the price drop will be, which is still a mixed opinion.”

People in the industry have been sounding alarm bells, believing that if there’s an oversupply prices will drop as they did in Oregon.

Robertson explains, “Oregon did not have a cap on licensing, which is the primary driver that has resulted in an over supplied market. In contrast, Health Canada has had a much slower roll out in terms of licensing. Furthermore Canadian licence holders can export into global markets, which will be under supplied for years to come.”