When Canada legalized cannabis a little over a year ago, it seemed like anyone who was anyone wanted to break into the market. The media nicknamed the frenzy Canada’s is “green rush”, as investors like Snoop Dogg and the former Toronto’s police force clamoured to get. Slice of the multi-million-dollar-pie.
“It didn’t rake a rocket scientist to recognize that these stocks were trading on fantasy and not on fundamentals,” says Jonathan Rubin, CEO of New Leaf Data Services.
With decades of experience in the energy commodities markets, Mr. Rubin saw the legislation in states like Colorado and California in the U.S. (and later in Canada) as the “once in a lifetime “ opportunity to get in on the ground floor of a brand new commodity.
There were early signs of trouble. When cannabis became became legal on Oct. 17, 2018, there wasn’t enough supply to meet demand. Long lines and backlogs of online orders plagued customers. Producers wasn’t sure hat strains would be most popular where, and kinks in the distribution chain were still being ironed out.
“Trying to understand what strains we should grow, in what formats and what quantities. We did a great job but we didn’t nail everything,” says Canopy president Rade Kovacevic.
Cannabis Supply and Demand
Where there was once a shortage, now producers have too much product, in part because of lack of retail.
In September, Canadians bought 11,707 kilograms (25,809lbs) of dried cannabis flower in Canada. But producers had a total of 165,000 kilograms of unfinished and finished products ready for sale, or more than enough to meet the demand for the entire year.
Black Market Still Thriving
When the government announced its decision to legalize cannabis, one of its principal reasons was to reduce the black market. But Statistics Canada estimates about 75% of cannabis users still use illegal cannabis. “There’s a strong resistance to the legal stores in the sense that it is more expensive and there aren’t enough of them. They’re not close to them, so they just deal with their local guy like they always have,” says Robin Ellis, co-founder of Toronto retailer The Friendly Stranger and a long-time activist for cannabis legislation.