After Tilray reported $43 million in 2018 marijuana sales, CEO Brendan Kennedy told conference call listeners Monday night it has been hard to find good weed. But Canada’s shortage should be fixed by next year.

“We achieved this growth despite supply chain constraints across Canada,” Kennedy said, “that have created pricing pressure for cannabis that meets our quality standards, forcing us to source from other suppliers.”

Over the next 18 months, he went on, Canada’s recreational pot market will slip to an oversupply, as has become the case in U.S. states like Washington and Oregon, where burgeoning production caught up with demand in the second year after legalization—and prices fell.

The company’s 2018 production shortfalls obliged it to buy cannabis on the wholesale market, pinching its December quarter gross margins to 20%, from 57% in the year-earlier period.

For the quarter, Tilray had sales of $15.5 million and losses of $31 million, or 33 cents a share. Analysts had expected half that level of losses. Ignoring the noncash expense of stock compensation, Tilray’s quarterly loss was $27 million, while its cash flow loss was $18 million.

Investors largely see those losses as startup expenses for the well-funded company. However, in trading Tuesday morning, Tilray’s volatile stock (ticker: TLRY) was down 2% to about $71.

Canada’s supply pinch took Tilray by surprise, admitted financial chief Mark Castaneda on the call. A year ago, the company had predicted the market would be oversupplied by this time. “That hasn’t happened,” the CFO said. “The quality of that supply is just not available as well as there’s just not enough product available.”

Although Tilray boosted its growing capacity with the February purchase of an Ontario grower for about $50 million, Kennedy said Canadian production assets were overpriced, and Tilray wouldn’t overpay for capacity that it believes will erode in value as the country’s supply and demand balance out.

While Tilray’s first market was Canada, with its nationwide legalization last October, Kennedy said the British Columbia-based company is focusing investments in the U.S. and other nations, which can be much larger markets than Canada. More than half of U.S. states have legalized medical or recreational cannabis under their laws, but the business remains hobbled by pot’s illegality under federal law.

“I believe we are a lot closer to federal legalization in the U.S. than most people realize,” Kennedy said.

The first step was the Farm Bill passed in December, which allows sale of products made from hemp—a variety of cannabis that lacks marijuana’s intoxicating ingredient, but contains the soothing substance known as CBD. Tilray has lined up a supply of CBD in the U.S., Kennedy said. The company also spent $317 million recently on a hemp-based packaged-food producer Manitoba Harvest, whose products it will introduce to the U.S.

The cannabis industry is keenly interested in developing packaged products that consumers could eat or drink, instead of smoking. When smoked, weed’s buzz is predictable and quick, but not when digested. Tilray has a joint venture on cannabis beverages with brewer AB InBev (BUD), in which each company will invest $50 million. On Monday’s call, the company spoke about cannabis foods and drinks.

Tilray has developed products that are tasty and quick-acting, Kennedy said, but the company is waiting for national and state governments to issue rules for such products. Tilray had originally thought Canada would permit cannabis edibles by October 2019, but that now seems less certain, while the country’s government decides what ingredients and packaging it will allow.

Write to Bill Alpert at william.alpert@barrons.com