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With recreational use of cannabis set to be fully legalized in Canada next year, speculation is circulating as to whether or not there will be enough market supply.
As recreational legalization in Canada draws closer, industry experts have started worrying if the amount of cannabis available for that side of the market will be enough to satisfy public demand.
While cases like Nevada–which recently legalized the recreational use of cannabis and is now experiencing a massive shortage of it–Health Canada, the country’s regulatory agency in charge of accepting companies to become Licenced Producers (LP) in accordance with the Access to Cannabis for Medical Purposes Regulations (ACMPR), attempted to dispel these worries with a statement.
The agency told Lift News, that despite some recent reports of a shortage of product for medical patients, based on market data, “there is sufficient supply of cannabis for medical purposes to meet the current needs of registered clients.”
It is unclear if this market data takes into consideration the number of potential recreational users, once cannabis becomes legal next year.
“Health Canada recognizes that the demand for cannabis for medical purposes has been steadily increasing, with the number of clients registered with licensed producers growing at a rate of about 10% per month. Health Canada recently implemented operational changes to streamline licensing and enable increased production of cannabis for medical purposes. These changes will help ensure reasonable access for individuals who require cannabis for medical purposes. Health Canada will continue to regularly evaluate the medical cannabis program and make future adjustments where necessary.”
Supply shortage to be expected
A market report from Haywood Securities indicated the investment firm expects a supply shortage despite the best efforts by Health Canada.
“We expect that to continue to be the case over the near-term as we believe that there will be a supply shortage at the start of a recreational market despite both the licensed producer’s goal to scale up production and Health Canada accelerating and streamlining the regulations and license application and approval process,” the firm wrote.
A recent report from Vice News highlighted the fact that research shows Canada would need “several hundreds” of LP’s to accommodate the needs of consumers and tourists into the country. Despite that, there are currently only 51 LPs in Canada, while 428 companies are still waiting on the approval for their applications.
Scott Boyes, CEO of Canadian Bioceutical (CSE:BCC; OTCQB:CBICF) told The Investing News Network his company applied for an LP designation back in 2015 but grew frustrated with the lack of communication from Health Canada.
“We got frustrated with waiting for information… so, rather than investing the planned tens of millions of dollars in Ontario, we have invested now almost $30 million in Nevada and Arizona,” Boyes said.
On the other hand, John Fowler, CEO of Supreme Pharmaceutical (TSXV:FIRE), told INN the shortage was to be expected.
“I think we need to accept this reality: in a country that consumes possibly up to $10 billion a year of cannabis, there is no way that the recreational market is going to have that much inventory when the market starts–nor should it,” Fowler said.
Investor Takeaway
Amid these shortage concerns, analysts and companies alike have begun to reevaluate the true value of the cannabis industry, not just the high expectations that came from a massive boom in the public sector and consumer excitement.
Sean Gercsak, an investment advisor with Canaccord Genuity Wealth Management, told INN there was an overvaluation concern for cannabis companies and that investors should be comfortable with the valuation of one before buying in.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
