What Do You Do With Five Hundred Tons Of Surplus Weed? Cannabis Producers Have An Oversupply Problem

When Canada became the second country in the world, after Uruguay, to legalize cannabis, weed companies were viewed as pioneers in “the green frontier.” Their stocks and their fortunes soared. They suddenly became rock stars.

Not Enough Weed To Go Around

With legalization, long lines to buy legal cannabis got longer. Eager to dispel media stories about product shortages, Health Canada adjusted its approval processes and bumped those with existing assets to the front of the line.

But, by late 2019, the market flipped into oversupply, and that’s where it is today.

Large producers began to grow more cannabis, outproduce their competition, drive down production costs and flood the market with weed products.

Then The Inevitable Happened

Between January and December 2021, licensed growers were forced to destroy huge quantities of unsold product - up to one-quarter of all dried cannabis produced.

While 2021 was a record, Canadian producers have continued to destroy huge amounts of cannabis every year, an MJBizDaily analysis found.

Last year, they destroyed a record 425 million grams – or 468 tons – of unsold, unpackaged dried cannabis, according to Health Canada data provided to MJBizDaily.

Why Is This Happening? 

One theory MJBiz's Matt Lamers poses is that the largest cannabis producers funded and built far more capacity than the industry needed after Canada's 2018 legalization.

The most poignant sign of the failure, according to The Walrus, might be sitting in warehouses across the country. At its peak in October 2020 there were about 1.1 billion grams of harvested or processed cannabis in storage. 95 percent of inventory had not been purchased by retailers or wholesalers, and much of it was “assumed to be largely unsaleable,” said Lamers, whether due to degradation or excess supply.

Massive Destruction

“Most of the biggest greenhouse transactions led to direct real estate losses worth millions of dollars and ‘balance sheet adjustments’ worth billions of dollars in inventory and other asset write-downs, previous MJBizDaily reporting found,” Lamers noted. “In fact, cannabis producers in Canada sold less than 20% of their production between legalization in 2018 and the end of 2020.

Was This Avoidable? 

Tim Barnhart, president of the National Indigenous Medical Cannabis Association says many of the well-funded companies used their influence to impact regulations in self-serving ways. He noted the example of Bruce Linton, former CEO of Canopy Growth CGC, who lobbied Canadian lawmakers against outdoor growing, using a bizarre theory that teenagers could ransack a licensed grower via drones.

“Had you had medical growers in there, and Indigenous Canadians, I think you would have had a set of good hybrid regulations, but what you have today is the financialization of [cannabis], and it’s not working for anybody—not even the LPs," Barnhart said. “Done the right way, it can be a lucrative industry. But Canada didn’t get it right."

Photo: Krakenimages.com and Svetlana Klementyeva by Shutterstock