Cannabis Shortage Won’t be Fixed with New Licenses, Says CEO

LEGALIZATION COVERAGE

Canada’s decision to legalize the recreational use of cannabis has allowed the rise of an emerging investment market. The cannabis public sector has become one of the most followed industries for investors.

As such, the Investing News Network brings investors a collection of stories on the critical transition and its impact on the public markets.

As part of the continued coverage on the effects legalization of recreational cannabis in Canada will have on the public sector, the Investing News Network (INN) talked with Greg Engel, CEO of Organigram Holdings (TSXV:OGI).

Producers in the space with supply deals will finally be able to obtain real numbers on the amount of moved product and the interest from consumers on the newly introduced brands.

Engel gave his prediction on whether or not Health Canada should reconsider the strenuous licensed producer (LP) application process as the market may face a product shortage very soon.

A new market report, co-authored by the the University of Waterloo and the C.D. Howe Institute, shows the supply of cannabis in Canada will reach only 210,000 kilograms during the first year of legalization, well below the the estimated peak demand of 610,000 kilograms.

The cannabis executive also commented on the newfound interest from the US investor into cannabis stocks found on premier exchange and even over the counter ones from the OTC Markets.

This interview has been edited and condensed for clarity and readability. Continue reading for more of what Engel had to say.

Investing News Network: We have seen more cannabis executives publicly support the claim that the market will face a serious shortage following legalization. How quickly do you foresee the stores of the new legal market running out of product?

Greg Engel: My perspective is … it’s going to be different across different parts of the country.

If you think of Atlantic Canada, for example, they got all their stores fully built out and are fully ramped up. I think they were very prescient in signing supply agreements with Organigram, Canopy Growth (NYSE:CGC,TSX:WEED) and a number of other companies to garner supply.

I think the rest of Canada is really staggering behind in terms of not having full retail stores.

Some of the ones that were late looking to get retail supply — for example Saskatchewan — may not have as much product supply early on or in the early parts of the program.

It’s hard to predict what the demand is going to be.

INN: With this projected shortage, do you expect Health Canada to find a way and streamline the LP application process as a way to get more producers online?

GE: What’s causing the delay at this point is really a number of companies not executing in the timelines that they had committed to.

This isn’t about new licensees getting licensed, because the lead time for them to get up and running and be functional and be contributing to the total volume is very significant.

With almost four years of experience in the space, my perspective is there is a very long learning curve to producing cannabis at scale and it’s going to be challenging for new producers to start to meet any semblance of participating from a demand perspective today.

It’s really up to the licensed producers today to continue to increase their production and improve their processes to meet that demand.

Part of what’s causing this is, I remember, companies have had some challenges in execution — whether that’s the build out of their facilities, the yields they are getting, the product they are growing, or some of the delays in packaging.

I think that is the most immediate fix, is for companies that need to focus on that.

I don’t think bringing licensed producers in the midterm is not going to assist in any shape or form for the next 12 to 18 months months anyway.

INN: What will the investor sentiment look like following legalization for these stocks?

GE: We’re seeing a lot of new investors come into Canada, including retail investors as well as some new large funds that have invested in the space. Also, we have seen a dramatic increase in the number of US investors coming into the space.

When we look at the daily volume in the US, we are trading on the OTCQX (OTCQX:OGRMF) and, especially for those companies that are trading on the Nasdaq or New York Stock Exchange, their volumes are up dramatically as US investors are coming in.

Many investors are looking at just the position many Canadian companies are at at this point with legalization.

I think one of the most important things will be for investors to go on the websites, the provinces’, look at who has product for sale, how much product is available there and find out which companies are delivering.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.