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“Based on published data for February 2019, the aggregate run-rate annual production for the LPs is almost 220 tonnes. This is not a theoretical production number, based on what producers say they can do; rather, it is based on what they have already done. Based on a recent tour of several production facilities, we think this figure is substantially understated.”

In 2018, legal demand for medical and recreational cannabis was approximately 63,000 kilograms, according to the Scotiabank report, which relied on official Health Canada and Statistics Canada data. The bank forecasts that demand could quadruple to 259,000 kilograms by the end of 2019, based on the assumption that a substantial portion of the illegal demand turns legal.

As long as you have an undersupplied market, which we have right now in Canada, it is very hard to evaluate market strategy because you’re selling all you can produce Paul Rosen, CEO, cannabis investment firm Tilray Royalty Corp.

Rowe noted that producers his team have spoken to were “generally aware that the industry will eventually be oversupplied” but held a degree of “complacency” since few believe that they will be the ones unable to sell their product.

“I’m not worried about it,” said Cam Battley, chief corporate officer of Aurora Cannabis, when asked about a potential oversupply scenario during a recent interview with the Financial Post. “Thus far, it has not played out that way so we’ll see. We’re completely sanguine of what will happen in that eventuality.”

Meanwhile, licensed producers’ inventories are piling up in an almost-exponential fashion. In March this year, just 7,627 kilograms of dried cannabis were sold in the legal market, but total inventory reached a staggering 143,773 kilograms. The biggest unknown, of course, is how much of that inventory licensed producers are hoarding to turn into edibles and concentrates, which are set to become legal this October.