July 14th, 2020
Over the last three years Canadian firms have spent significant resources and efforts on scaling-up growing capacities. However, since poor Q2 results in 2019, many Canadian LPs have been restructuring operations with personnel lay-offs and the closure or sale of facilities, in an effort to reduce costs.
But recent data shows that the growing pains of the industry haven’t affected the rising trend in licensed growing space, mainly driven by outdoor crops, which aren’t as capital intensive and can result in lower costs of production than the high-tech greenhouses that were once dominant in Canada. While Canopy Growth recently announced the closure of several greenhouses, it has recently sown 60 hectares of outdoor land in Saskatchewan.
Licensed cultivation space doesn’t necessarily correspond with the actual sown area of crops but if we assume a conservative annual harvest of 1kg of dried flower per square meter of indoor crops and 0.33kg for outdoor crops, the current licensed capacity of Canada sits well over 3,000 tonnes per year. Annual domestic sales, including both medical and recreational, is estimated to be over 200 tonnes per year*.
While Canadian exports, mainly to Germany and Australia, have been on the rise, they represent relatively small volumes compared to the domestic market. Only around 3.5 tonnes of Canadian cannabis were exported to Europe in 2019, and roughly 3,700 litres of oil were exported to Australia last year.
The result means that production is still vastly greater than domestic consumption and international exports combined. This fact, coupled with international competition from the likes of Colombia, Portugal and Australia, means that Canadian LPs continue to be over-leveraged, producing more cannabis than they can likely sell. While we expect the established players to pivot towards more consumer-centric approaches, shifting focus towards brand-value, issues with oversupply may end the race to build bigger and more efficient infrastructures and cause major issues for the less competitive LPs in the market.
*Assuming demand stays consistent with the Health Canada data from April 2020, Canada would consume 208 tonnes of cannabis over the course of 1 year. This includes 156 tonnes of dried flower as well as 52 tonnes of flower used to produce extract, assuming a 5ml to 1gr conversion factor. Due to Health Canada changing the reporting units, conversion factors between packaged units and flower is estimated at 2.3 grams per packaged unit and 20ml per packaged unit of extracts.
For more in-depth information, consumer data and strategics support, contact the Prohibition Partners consultancy team at info@prohibitionpartners.com.
