Featured, Medical Marijuana

Marijuana cultivators up 20% in Canada as industry scrambles to meet growing demand

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The number of licensed medical marijuana producers in Canada has jumped 20% over the past few months after the nation’s top regulator dedicated more resources to processing cultivator applications to meet growing demand for cannabis.

Since revamping and streamlining the application process in late May, Health Canada has awarded nine licenses, bringing the number of licensed producers (LPs) to 54. Health Canada had issued six licenses in the previous five months.

The increase in cultivators has positioned the industry to better meet the nation’s growing demand for medical marijuana. The number of registered MMJ patients has tripled in the past year, to 167,000.

The jump in cultivators also comes as Canadian marijuana growers prepare for the planned rollout of the nation’s recreational cannabis market next summer. LPs are scrambling to build new capacity amid concerns about a potential supply shortfall.

“Having our production capacity built out is the most critical thing for me today,” said Greg Engel, CEO of Moncton, New Brunswick-based OrganiGram.

He expects the adult-use market will be much larger than the medical market.

The ramp up

Other producers clearly share Engel’s concerns.

In fact, a week doesn’t go by without an LP announcing plans to build a massive production facility.

This week it was Quebec-based Hydropothecary’s turn. The company, which trades on the TSX Venture Exchange under the symbol THCX, plans to put shovels in the ground this year for a 250,000-square-foot greenhouse at the company’s 65-acre facility in Gatineau, Quebec. When fully operational, it will be able to produce 25,000 kilograms (55,116 pounds) of dried cannabis per year.

Last week, Nanaimo, British Columbia-based Tilray said it would spend 30 million Canadian dollars ($23 million) to convert an Ontario pepper farm into one of the largest cannabis facilities in Canada.

By the end of 2018, the 10-acre facility will have the capacity to produce over 40,000 kilograms a year, but the 100-acre property in Enniskillen has plenty of room for expansion.

And the week before that it was Aphria teaming up with Nuuvera to build a 1 million-square-foot MJ greenhouse in the Ontario town of Leamington, adding to Aphria’s previously announced plan to establish another 1 million-square-foot greenhouse in the same town.

Capacity, however, is just one part of the larger puzzle, with some provinces preparing to roll out distribution, education and retail frameworks as early as this fall in anticipation of legalization next summer.

“The big questions for use are: What do the products look like? What do the regulations look like? What does the packaging look like? What form factors are and aren’t allowed?” said Brendan Kennedy, CEO of Tilray and Privateer Holdings. “Those details significantly impact our business.”

A looming shortfall?

The scramble to build new capacity comes as questions swirl over whether the industry will be able to meet demand following next year’s rollout of recreational marijuana.

Industry estimates put current licensed annual production capacity in the range of 60,000 kilograms-120,000 kilograms That’s short of most demand projections for next year.

How much cannabis will Canadians consume after legalization? A lot, according to two estimates.

Canada’s Parliamentary Budget Office – an independent government body that provides economic analysis to Parliament – estimates that Canadians will consume between 378,000 kilograms and 1.01 million kilograms of cannabis next year, with a midpoint estimate of 655,000 kilograms.

By 2021, the PBO estimates cannabis demand will rise to between 403,000 kilograms and 1.1 million kilograms, with a midpoint of 734,000 kilograms.

The government’s projections are higher than those by Eight Capital, a Toronto-based brokerage firm, which pegs demand for recreational and medical cannabis at about 350,000 kilograms in 2019, the year after legalization, and supply at 300,000 kilograms.

Eight Capital doesn’t see the market balancing itself until 2024, when supply and demand will more or less meet at 650,000 kilograms per year.

Regional disparity

In addition to a potential supply shortfall, concerns have surfaced because Ontario and British Columbia account for the lion’s share of LPs.

“Eighty-four percent of the producers are from B.C. and Ontario, where they only have about 50% of the population,” said Evan Price, president The Truro Herbal Co. (THC) in Truro, Nova Scotia, adding there is a “glaring underrepresentation” in where LPs are situated.

Price noted that almost one-third of Canada’s population resides east of Ontario, but the eastern provinces have only four licenses to cultivate cannabis – and “there are zero licensed producers in our province.”

THC hopes to have a cultivation license next March to meet demand for medical marijuana along the country’s eastern coast.

credit:mjbizdaily.com

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