Will the Price of Cannabis in Canada Ever Drop?Randi DruzinAugust 7, 2019
An oversupply of cannabis in the state led to the dramatic price drop, which spurred its lawmakers into action. They recently gave the Oregon Liquor Control Board more power in limiting the number growing licenses based on supply and demand, and they empowered the governor to sign agreements with other states for importing and exporting cannabis.
Canadian cannabis industry stakeholders have been paying close attention to developments in Oregon because there is growing concern a similar scenario will unfold here too, as the government grants an increasing number of licenses to producers. But industry observers don’t think that will happen.
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“For now, the [Canadian] producers have had confidence every gram they grow is sold, but it’s not always going to be the case,” he said at the Canadian Cannabis Summit in Calgary. “It’s what a lot of LPs are worried about.”
Most industry experts agree there will be an oversupply of cannabis, though they have varying opinions on when that will happen, but few think it will lead to a dramatic drop in price.
Jennifer Lee, the global cannabis practice leader at Deloitte, doesn’t see oversupply being an issue in the near future. She told Leafly that licensed producers are learning as they go and aren’t yet capable of producing enough cannabis to cause a glut on the market. She added that cannabis takes time to grow.
“Also, the market will expand when edibles are introduced [in October,]” she added.
Alan Brochstein, a cannabis analyst with Texas-based 420 Investor, has the same view.
“Licensed producers [in Canada] are still in the ramping up phase,” he said, explaining that kinks still need to be worked out. He told Leafly that in the current environment “a lot of cannabis could be taken off the market all at once,” and he cited CannTrust as a case in point.
Last month, the producer put a hold on sales and shipments of all cannabis products after Health Canada discovered unlicensed cultivation at its Ontario greenhouse.
“People who are expecting an oversupply in the short-term are assuming producers can deliver on their promises,” he said. He doesn’t see oversupply being an issue for at least three years.
Chris Damas, editor of the BCMI Cannabis Report, sees things differently. He is convinced the amount of harvested cannabis is going to exceed demand in the near future.
“By January of next year we will be swimming in dried cannabis,” he told Leafly. “These operators are getting better at what they do. Pesticides and other crop loss problems are behind them.”
Adrian Robinson, CEO of High Street Cannabis, also believes the Canadian market will face “a wall of supply in the coming quarters.”
He thinks this could “put downward pressure on pricing for Canadian companies as they rely almost entirely on the Canadian market for their revenue.” But he told Leafly “the real question will be how dramatic the price drop will be.”
‘We’re not the same as the US’
Though they disagree on when we could see an oversupply of cannabis in Canada, all three analysts agree that an oversupply would not lead to a dramatic drop in retail price and they point to government regulation as the primary reason.
“One of the big mistakes people make when comparing markets in the US and Canada is that they assume we are like the US. But we’re not the same,” said Lee. She explained that supply and demand dictate the retail price of cannabis in the US, but not in Canada. The industry is heavily regulated here with almost all provincial governments controlling retail and distribution.
Saskatchewan is an exception. Everything from retail to wholesale distribution and online sales in that province have been left to the private sector.
“In many respects, government sets the prices in Canada,” she said. “You’re just not going to get a situation here like you do in parts of the US, where cannabis is going for three dollars a gram.”
“Government is in the driver’s seat in this industry,” agreed Damas. “Regulators determine what price retailers pay for their cannabis stock—and regulators don’t want to kill the goose that laid the golden egg.” In other words, the government wouldn’t allow an oversupply to cut producers’ profit margins dramatically.
Damas said regulators might pass along some savings to recreational users but said they shouldn’t hold their breath waiting for a dramatic price drop.
“Of course,” he added, “It could be better for them if the government just got out of the way.”