Data recently released by Health Canada concerning the Canadian cannabis market reveals a growing problem among the country’s producers of dried cannabis as inventory being held at the end of 2021 reached record highs.
Escalating Inventories
The near-maxed-out stock comes as no surprise to many industry observers when considering the amount of dried cannabis that was cultivated during the Fall months last year. It’s a time of the year, predominantly when growing amid Canadian climates, that much of the cannabis that’s grown outdoors will be harvested. And, according to Health Canada’s numbers, an astonishing 561,459 kilograms was yielded during the months of September, October and November of 2021.
It’s a harvest that added to the cannabis that had already been grown, harvested, and placed in inventories across the country, bringing the total amount of dried cannabis being held by licensed producers, wholesalers and retailers to a whopping 1.4 billion grams by the end of November.
Need to Destroy
What makes this bulge in cannabis inventory so unique is the fact that, unlike product requirements within most other retail verticals, dried cannabis must be destroyed each month as per Health Canada regulations. And, it meets this fate as a result of being deemed unsellable for a number of different reasons, including an expired life, various forms of poor quality, and lower than desired potency.
As previously reported, recent Health Canada data revealed that an estimated 425 million grams of unsold and unpackaged dried cannabis flower was destroyed in 2021. It’s destruction that was up an incredible 50% over 2020’s estimated 279 million grams of destroyed cannabis, dwarfing the 155 million grams of flower destroyed in 2019.
Supply and Demand Challenges
It’s data that, when taken into context, is representative of a still maturing industry that has not yet fully grasped the rigors of supply and demand, consistently overestimating consumption. However, it’s also indicative of a sustained trend that shows little sign of slowing, and one that the country’s cannabis cultivators and forecasters have got to solve soon.
However, the problems and challenges surrounding overproduction don’t seem to be amenable to remedy, at least in the near-term, given the number of players that continue to enter the ever-expanding industry.
More New Players
Cannabis production within Canada totaled 1.6 billion grams in 2021, driven largely by the large cultivator companies jostling for position within the space. The number of licensed cultivators, processors and sellers of cannabis has been increasing steadily and currently sits at 897 operating today as compared to 730 at this time in 2021, 440 in 2020, and 206 in 2019.
As would be expected, as the number of cultivators operating within the country increases, so too does the land coverage required to grow all of that cannabis. Health Canada data shows that the area on which licensed outdoor growers are cultivating their plants has also grown to a record high, totalling approximately 713 hectares at the end of 2021.
Equilibrium Required
Considering the land being used, the number of cultivators involved in producing cannabis product, and a consumer market that continues to grow, it seems that overproduction is one of the few operational inefficiencies left for the industry to sort out. And, until it does, most industry experts agree that an equilibrium of supply, demand, and price will remain unattainable.