Ontario would like to be free to allow as many cannabis retail stores as the market could sustain: minister

The supply chain difficulties that have hit some cannabis retailers and distributors hard—cited by the Ontario government as a main driver in its decision to temporarily limit retail licences to 25—are expected to ease in time and were anticipated, says a Health Canada spokesperson.

“It is expected that as the market stabilizes, the supply chain difficulties currently being experienced by provincial and territorial retailers and distributors will dissipate and that localized and product-specific shortages will become far fewer in number,” Tammy Jarbeau, senior media relations advisor serving Health Canada and the Public Health Agency of Canada, notes in a recent email to The GrowthOp.

“Health Canada is aware of reports of localized shortages of cannabis products in some markets and for some product lines,” Jarbeau says, but reiterates what Health Canada has said for some time: supply exceeds sales.

Federal inventory exceeds supply

The latest figures out of Ottawa—federal licence-holders and provincial and territorial public bodies must report information to Health Canada by the 15th of each month through the Cannabis Tracking System—show total sales of cannabis for medical and non-medical purposes during the previous month.

Specifically, the figures show total sales of dried cannabis as of Nov. 30 increased 22 percent to 8,872 kg from October. Total sales of cannabis oil climbed 14 percent to 7,805 litres month over month, note the figures released late on Jan. 15.

As was the case for October, inventory exceeded sales. Total finished dried cannabis products held in inventory amounted to 25,607 kg as of the end of November, 27 percent up from October’s end. Inventory for finished cannabis oil products was 33,954 litres, up 17 percent compared to one month earlier.

“Finished inventory held by provincial and territorial distributors and retailers increased 62 percent for dried cannabis,” the update states. “In aggregate, this inventory held by provinces and territories was the equivalent of two months’ supply of dried cannabis when compared against the volume of non-medical sales in November.”

Finished inventory held by provincial and territorial distributors and retailers for cannabis oil increased considerably more, by 211 percent. “In aggregate, this inventory held by provinces and territories was the equivalent of four months’ supply of cannabis oil when compared against the volume of non-medical sales in November,” the bulletin adds.

Inventory changes were less marked among federal licence-holders, with their finished inventory increasing 11 percent for dried cannabis and decreasing one percent for oil.

It was also a matter of inventory exceeding sales in October, following legalization of adult-use cannabis. Jarbeau notes that legal sales of dried cannabis and cannabis oil for medical purposes were 2,756 kg and 5,479 litres, respectively; sales from Oct. 17 to 31, 2018 were 4,504 kg and 1,763 litres, respectively, for non-medical purposes.

Inventories as of Oct. 31, 2018 were more than 20,000 kg of finished dried cannabis products, over 32,000 litres of finished cannabis oil products, 96,000-plus kg of unfinished dried cannabis products and more than 13,000 litres of unfinished cannabis oil products.

Overseeing distribution, sale is a provincial responsibility

Jarbeau reports that provinces and territories are responsible for overseeing the distribution and retail sale of cannabis within their jurisdictions and that supply arrangements are negotiated directly between federal licence-holders and provincially and territorially authorized retailers. “This includes arrangements for timely and efficient movement of products from federally licensed facilities to provincial and territorial distribution centres and retailers,” she says.

The Ontario government laid the blame for moving from unlimited retail licences to a lottery system—held on Jan. 11—awarding just 25 licences at Ottawa’s door.

“Taking into consideration the required investments for a prospective Ontario private legal retailer, we cannot in good conscience issue an unlimited number of licences to businesses in the face of such shortages and the federal government’s failure to provide certainty around future supply,” provincial attorney general Caroline Mulroney and provincial finance minister Vic Fedeli reported last month.

“If Ontario’s Government for the People had its way, there would be as many cannabis retail stores across the province as the market could sustain,” Fedeli further argued in a Toronto Sun op-ed, published the day before the lottery. “Unfortunately, there is a serious cannabis supply shortage created by the federal government. As a result, we are being forced to scale back our plans dramatically, for now,” the minister noted.

As part of the lottery, the Alcohol and Gaming Commission of Ontario (AGCO) received 17,320 applications—16,905 of which were included in the draw. By type, 64 percent were sole proprietorships; 33 percent were corporations; three percent were partnerships; and one percent were limited partnerships. The recipients are posted on the AGCO website.

Period of adjustment should be expected

“As with all major transitions, a period of adjustment is normal and was anticipated by all governments and the industry,” Jarbeau says. “This period of transition will likely continue in the months ahead, as the industry and provincial and territorial distributors and retailers aim to match shipment levels to market demand and to improve efficiency of the supply chain,” she notes.

“As cannabis licence-holders continue to expand their production and as Health Canada continues to review and approve licence applications, the department anticipates that the overall levels of supply will continue to grow month over month,” Jarbeau says.

In the last 18 months, Jarbeau reports that Health Canada has licensed 93 new sites to produce cannabis—more than double the number licensed in the four years prior—and as of Dec. 14, 2018, 134 companies had a federal licence to cultivate and/or produce cannabis. Additionally, more than 200 expansion amendments have been issued, which allow licence-holders to expand production capacity at existing sites, and licensed square footage has increased from 2 million square feet to more than 14 million sq. ft.

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