Demand for pot will be much higher than anyone anticipated after legalization, says report commissioned for Health Canada
With just weeks to go before recreational pot becomes legal across Canada, a new report commissioned by Health Canada predicts the demand for it will be substantially higher than widely anticipated.
The report used a 2017 federal survey on cannabis use to estimate how much adult Canadians will consume in the first year of legalization.
It calculated the amount at 926,000 kilograms for both recreational and medical use. That’s a whopping 41 per cent higher than the estimate of 655,000 kilograms by the Parliamentary Budget Officer in 2016.
It’s also higher than estimates by many private investment companies. A recent report by CIBC World Markets Corp., for example, estimated demand would reach 850,000 kilograms by 2020.
If the new report is on the mark, Canadians could face shortages after recreational marijuana becomes legal across the country on Oct. 17.
Some industry experts have long predicted that Canadian cannabis growers would not be able to produce enough, at least initially. The new report suggests the problem might be worse than expected.
“We all know there is not going to be enough product on Day 1,” said Greg McLeish, a financial analyst with Mackie Research Capital Corp. who specializes in cannabis. “Not nearly enough.”
McLeish predicts that supply won’t match demand until 2020.
The president of Canadian grower Canntrust says growers will scramble to meet demand. His company has already received requests from provinces to supply more cannabis than the initial supply deals specified. Brad Rogers said he’s not sure if that’s because other growers were unable to meet their quotas or the provinces are banking on more demand.
Initial orders of 10,000 kilograms from three western provinces have been increased to 17,000 kilograms, he said in an interview.
Rogers expects a “huge curiosity spike” of people wanting to buy legal cannabis in the early days. “I don’t think there will be empty shelves, but there might be shortages of some strains.”
It’s hard to predict. The demand for legal pot will also depend on how many people continue to get their supply from illicit sources — dealers, dispensaries and friends. How quickly people shift to the legal market depends on a host of factors, from price and convenience to the range of products on sale and whether police forces succeed in shutting down illegal dispensaries.
No one expects the huge black market to disappear overnight.
Even so, the numbers don’t look promising for a plentiful supply in the early days. If, for instance, only half of the estimated annual demand of 926,000 kilograms of cannabis is purchased legally, that would require a supply of 463,000 kilograms.
Cannabis growers now produce about 350,000 kilograms a year, according to an estimate from a CIBC World Markets report.
The big growers are expanding frantically and new companies are vying for licences. Billions of dollars are being invested as companies announce ambitious plans to become leaders in cannabis production. How much of that actually materializes remains to be seen. “Construction and production promises in this industry are a dime a dozen,” notes the CIBC report, published in May.
Share on Facebook Tweet about this