Federal Minister Rejects Ontario’s Claim of “Pot Shortage”

Federal Minister Rejects Ontario’s Claim of “Pot Shortage”
Federal Minister Rejects Ontario’s Claim of “Pot Shortage”

  • Canada’s largest province has badly lagged the rest of the country in opening legal cannabis stores
  • This is having an enormous negative impact on the Canadian cannabis industry
  • Opening just “a handful of stores” in April immediately caused Ontario cannabis sales to more than double
  • Ontario claims its inability to open more stores is due to a “pot shortage”, despite data to the contrary

 
Has Ontario been killing Canada’s (legal) cannabis industry?

Ontario is Canada’s largest province (and largest cannabis market) with a population in excess of 14 million. It also has the dubious distinction of being the slowest province to begin to fully implement cannabis legalization.

It took Ontario nearly six months to open its first cannabis retail store. Symbolically, that was on April 1, 2019 – April Fool’s Day. As The Seed Investor has reported previously, opening just “a handful of stores” in Ontario immediately caused cannabis sales to more than double, from CAD$7 – 8 million to $19.6 million in a single month.

Clearly, Ontario’s inability (refusal?) to open more retail cannabis stores has had an enormous negative impact on Canada’s legal cannabis company. As The Seed Investor has also reported, the entire build-up in Canadian cannabis inventories (from 100,000 kilograms to 150,000 kilograms) would likely have never occurred if Ontario had matched Alberta in opening up its cannabis industry.
 
Consider the impact on the cannabis inventories of Canadian LP’s if current cannabis sales in Ontario were well in excess of CAD$100 million per month as opposed to less than CAD$20 million.

If we assume an average selling price of roughly CAD $15 per gram, Ontario’s legal cannabis dispensaries would be selling an extra 5,000+ kilograms per month of cannabis. That would have taken a large bite out of the 150,000 kilograms in total inventories.

Put another way, if Ontario had fully opened up the province to cannabis commerce on Day 1 of national legalization, by itself that could have accounted for the entire build-up in Canadian inventories from the initial 100,000 kilograms for sale last October.

Alberta has already opened up nearly 100 cannabis dispensaries. The city of Calgary alone (population 1.2 million) has more legal stores than the entire province of Ontario (29 to 22). And Calgary has just approved another 25 stores.

Rather than except any responsibility for its failure, Doug Ford’s Conservative government was looking for an excuse. It chose (surprise, surprise) Canada’s federal Liberal government as its target.

Via BNN Bloomberg, Ontario said this.
 
The province says it will continue to employ a "phased-in" approach in issuing cannabis retail licences given a persistent and ongoing supply shortage of legal pot, according to the province's attorney-general Doug Downey. A government official told BNN Bloomberg that Ontario remains committed to eventually going to an open cannabis retail market once supply issues are solved. [emphasis mine]

Ontario made this claim despite BNN Bloomberg having also published the following just two weeks earlier.
 
A glut of unsold pot stuck in Canadian licensed cannabis producer vaults may wind up being worthless…

While BNN Bloomberg offered no evidence to support its claim that any of Canada’s 150,000 kilograms of cannabis “may wind up worthless”, it did state it was citing official (federal) Health Canada numbers on cannabis inventories.

Not surprisingly, Canada’s federal government has responded to Ontario’s claim, via Bill Blair, Minister of Border Security and Organized Crime Reduction. This is the ministry that has been put in charge of regulating Canada’s pot industry at the national level.

Blair shot back, via a CBC news report.
 
"With the notable exception of Ontario, the rest of the country has made steady progress in displacing the illicit market with licensed and regulated retail stores," Bill Blair said in a statement Wednesday. "While the rest of the country made progress, the Ford government made excuses."

The CBC article also reported:
 
But in a statement to CBC Kitchener-Waterloo, Blair said, "The data is clear: there remains enough supply to meet and exceed combined retail sales.

Canada’s legal cannabis industry is hurting as evidenced by the negative reporting and negative market reaction that greeted the latest earnings report from Canadian industry leader, Canopy Growth Corp (US: CGC / CAN: WEED).




(chart courtesy of Stockcharts.com)

Following pressure from largest shareholder, Constellation Brands (US: STZ), Canopy’s co-CEO Bruce Linton was ousted from his position. The Seed Investor has already suggested that Linton would likely still have his job today if Ontario had been more prompt (and competent) in opening up retail cannabis stores in the province.

Notably, Ontario has just announced plans to open another 50 stores in the province. This will more than triple the total number of cannabis retailers in the province. And it casts further doubt on Ontario’s claim of a cannabis shortage.

Will Ontario continue to make the excuse that its previous inability to open more retail cannabis stores was due to a “persistent and ongoing shortage of legal pot” despite the data to the contrary? Stay tuned.
 

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