December 9, 2018

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Legal marijuana might be in short supply next week

The supply of legal pot in Canada will only meet 30 per cent to 60 per cent of demand after legalization, keeping the black market very much alive and stunting the government’s tax take, according to a new study. (Jeff Chiu / The Associated Press files)

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The supply of legal pot in Canada will only meet 30 per cent to 60 per cent of demand after legalization, keeping the black market very much alive and stunting the government’s tax take, according to a new study. (Jeff Chiu / The Associated Press files)

Eager pot buyers hoping to score some weed when Canada goes legal next week could be in for a bummer.

Only a handful of retail locations countrywide will be up and running on Oct. 17, including just one store in British Columbia and none in Ontario.

Producers, meanwhile, are unlikely to come close to meeting initial demand due to delays in getting licences and signing supply agreements. The result will be limited selections of dried bud and oils for consumers.

“It will be a fairly thin market to begin with and maybe that’s why a lot of these provinces haven’t rushed to get retail locations and bricks and mortar for Day 1,” PI Financial analyst Jason Zandberg said. “I would expect there to be long waits and very limited product types.”

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Eager pot buyers hoping to score some weed when Canada goes legal next week could be in for a bummer.

Only a handful of retail locations countrywide will be up and running on Oct. 17, including just one store in British Columbia and none in Ontario.

Producers, meanwhile, are unlikely to come close to meeting initial demand due to delays in getting licences and signing supply agreements. The result will be limited selections of dried bud and oils for consumers.

"It will be a fairly thin market to begin with and maybe that’s why a lot of these provinces haven’t rushed to get retail locations and bricks and mortar for Day 1," PI Financial analyst Jason Zandberg said. "I would expect there to be long waits and very limited product types."

The limited store openings and pot supplies may hamper sales at the outset, curbing enthusiasm for pot stocks that have soared in anticipation of Canada becoming the first Group of Seven nation to legalize marijuana. Canada’s market is expected to soar to $4.3 billion in the first year, according to Deloitte, with global demand poised to juice sales further as more countries follow Canada’s lead.

While there have been worries about producers being able to meet demand for Day 1, that concern has now extended to the distribution end as many retailers are working through provincial approval processes to establish their footprint.

It’s a scenario that’s played out in other jurisdictions. When recreational use was legalized in California in January, initial bottlenecks crimped inventory. In Colorado, one of the first U.S. states to legalize recreational pot, long lines snaked around dispensaries and prices soared as high as US$400 an ounce.

"There just isn’t that much product that’s going to be available Day 1," Zandberg said.

He noted some major capacity expansions, including Aurora Cannabis Inc.’s Sky facility in Edmonton, won’t have full production online until later this year or early 2019. "We’re still waiting on a number of large facilities to be completed and have full production come out."

The supply of legal pot in Canada will only meet 30 per cent to 60 per cent of demand after legalization, keeping the black market very much alive and stunting the government’s tax take, according to a new study.

Cannabis supply will reach about 210,000 kilograms in the first year after Canada legalizes marijuana, according to the report to be released this week by researchers at the University of Waterloo and the C.D. Howe Institute. Demand meanwhile, will be about 610 tonnes.

"There will not be enough legal supply, especially during the first half of the year following legalization, primarily because of the slow rate of licensing producers," Anindya Sen at the University of Waterloo and Rosalie Wyonch at Toronto-based C.D. Howe said in their report.

The rollout in other parts of the country varies:

● Alberta expects to have as many as 17 stores operational on Oct. 17.

● British Columbia’s Liquor Distribution Branch says its lone store will be in Kamloops, 300 kilometres from Vancouver.

● Saskatchewan estimates that about a third of its planned 51 retail locations will be ready for the first day.

● Quebec plans to have 12 stores open, while Nova Scotia, with an eighth of Quebec’s population, will also have a dozen locations open next week.

"As much as it seems we had several months to put this all together, Oct. 17 is coming very quickly," said John Arbuthnot, chief executive officer of Winnipeg-based Delta 9 Cannabis Inc., which will have a 3,200-square-foot store open. "We’re going to see some successes on Day 1 and we’re going to see some hiccups as well."

While the number of products available in legal stores will increase over time, initially there will be dozens, instead of hundreds, available, Arbuthnot said. There’s a chance there could be product-specific shortages and that some challenges could arise if certain items sell out and can’t be restocked immediately, he said.

The federal government didn’t formally announce when sales would start until mid-summer, leaving retailers rushing to draw up architectural and engineering plans, go through the permit and licensing process in addition to hiring and training staff, Arbuthnot said.

"What the demand curve is and how the consumer reacts, we’re all still somewhat in the dark," Arbuthnot said.

— Bloomberg News

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