When cannabis was legalized in Canada, businesses and the Canadian government anticipated a considerable windfall. Consumers clamored for the product while growers and retailers planned to meet those demands. However, serious problems have arisen symbolized by a stamp.
Extraction, processing, and packaging are stopping the cannabis pipeline in Canada. The required excise-tax stamps are stalling delivery. Excise tax stamps with no glue are required as businesses are forced to apply them by hand as supply issues continue.
Hexo Corporation’s Chief Executive Sebastien St-Louis has said that the entire sector failed to anticipate supply-chain problems in Canada. It is a big glitch considering that Canada is the first country in the developed world developing a national recreational cannabis industry.
According to Organigram, massive amounts of cannabis are being grown, but problems remain to transform the plant into a product that can be legally sold. Organigram has figured out how to automate its production of some products, but Moncton, based in New Brunswick, must still manually apply the tax stamps onto its raw-marijuana containers, Chief Executive Greg Engel told MarketWatch in an interview.
“Our pre-roll equipment puts [the tax stamp] on automatically, the oil line does it automatically, but the dry flower jar line, we just can’t get it automatic,” Engel said, adding that he hopes to have a fix in two weeks.
Engel explained that his company had nearly $30 million worth of dried cannabis it still needs to process, which is more than it brought in actually selling cannabis in the same quarter. The company now staffs some parts of its operations 24 hours a day, seven days a week, while outsourcing some of its extraction duties to Valens Groworks Corp.
Engel reported that the company is able to produce over 40,000 pre-rolled joints a day and has produced 2.6 million in total as of the day of the interview. However, tastes are changing. Cannabis oils, according to Engel, are no longer a big seller, but there is a massive amount of demand for CBD products.
“Provinces are desperate for CBD products; private retailers are desperate,” Engel said. “When you look at what’s changed [since Oct. 17, 2018], there’s been a lot of noise and interest in CBD.”
Health Canada recently reported that the inventory of smokeable cannabis is 19 times the demand. However, as reported by the Toronto Star, Brock University cannabis expert Michael Armstrong states that while the statistic might be technically correct, it doesn’t reflect the industry’s ability to deliver products either to retail stores or ship for online orders.
“That (19 times number) is mathematically correct, but it doesn’t really mean very much,” says Armstrong, who teaches operations management at the St. Catharines, Ontario, school. “It certainly doesn’t mean what they claim it means, that there’s lots of supply. There is very little finished dry cannabis actually available for customers. Most of that is raw material, or what we call work-in-process inventory,” he says. It should be noted that it takes from two weeks to two months to dry and cure the harvested cannabis. “So a large amount of that you’re just waiting (on), you can’t do anything with that.”
More importantly, according to Armstrong, even products ready for consumption can’t be packaged and transported due to logistical shortcomings.
While new products come into the market, many Canadian provinces are still struggling to ensure there is an adequate supply of what consumers actually want to buy on the shelves or have shipped to them.
