Following the legalization of recreational cannabis and the bill taking effect late last year, the market has been experiencing massive shortages from the get-go. These shortages have been caused by a variety of factors such as delayed licensing approval, problems associated with scaling, and other legal problems due to government regulations.
Looking into this market and analysis the things taking into effect, the cannabis shortage is expected to continue for quite a while before the market can stabilize and find an equilibrium in supply and demand. Some of the things have have led to this conclusion among industry experts include the following:
The new licensing laws by Health Canada. To deal with a massive backlog of applications for marijuana growing, processing, distribution, and sale, Health Canada introduced a new regulation that requires all applicants to have a fully functional facility before applying for licensing. While this s a useful tool to reduce the backlog, it also will increase the delay in licensing, because an applicant can`t build their facility while awaiting licensing. And for the cautions, entrepreneurs who prefer to have a license before investing in a facility, significant declines of these applications can be expected.
There is also the issue of government involvement in the market. For any market to find its supply and demand equilibrium, it needs to be allowed to function independently or at least with minimal government intervention. The cannabis market, however, is highly regulated, there are a lot of government restrictions, barriers in to entry and supply that hinder the natural market functioning. The interference is expected to continue into the foreseeable future until to such a time when the cannabis market gets the same freedom as the alcohol market.
Another reason to expect continued cannabis shortages is the expected legalization of recreational cannabis edibles, extracts and topical. While this is unquestionably a good thing for both suppliers and consumers, the introduction of this new products is and will cause shortages in two ways. One, since edibles offer higher margins that dried cannabis, suppliers are holding their stock while awaiting the legalization of these new products. Why sell now while they can wait a few months and make much larger profits? On the other hand, to start processing new products will require new equipment’s and facilities that the companies use for processing, for this and other reasons, there is an expected similar cannabis edibles shortage as it has been experienced in the dried products.
Every new market experiences problems at the beginning which tend to decline as the market grows and stabilizes, the same can be expected in the cannabis market Spark medical cannabis Even though the supply of marijuana is increasing, for every one gram increase in supply, there is an increase in demand that is higher that supply. In the meantime, the question of where is the weed? Will be around for quite sometime.
