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Jan 8, 2019

Canada's pot shortage could last up to 3 years, executives warn

Aurora Cannabis Q2 revenue forecast comes in below estimates


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Canada’s pot shortage could last as long as three years, according to industry executives who say production estimates are too rosy.

Shortages have plagued the country since recreational marijuana was legalized in October. In response, Quebec’s government-controlled stores have closed three days a week, Alberta has temporarily stopped issuing retail licenses and Ontario has said it will initially open just 25 stores across Canada’s most populous province.

As of mid-December, about 50 per cent of products for sale in five provinces were out of stock, according to Cowen & Co. analyst Vivien Azer.

This situation could continue for as long as three years, said Chuck Rifici, chief executive officer of Toronto-based Auxly Cannabis Group Inc.

“There’s a lot of execution risk, people are expanding by 10, 20 times,” Rifici said in an interview at an AltaCorp Capital conference in Toronto Tuesday. “Personally, I think we’re at least three years out from hitting real equilibrium.”

Facing Delays

While smaller producers will face hurdles including access to capital and expertise, even the larger companies are likely to face delays as they open new facilities and refine their production methods, Rifici said.

“Ultimately any manufacturing facility growing 20 times is likely to face delays,” he said.

Greg Engel, CEO of Organigram Holdings Inc., predicted it will be “a couple years” before the supply shortages are solved, while Everett Knight, executive vice president for strategy and investments at Valens Groworks Corp., said it will take two to three years.

“It’s harder to grow cannabis than most people think,” Knight said, adding that producers tend to underestimate how many plants they’ll lose to problems like mold.

OrganiGram CEO: No problems with cannabis supply here

OrganiGram CEO Greg Engel says the company is well-stocked for the recreational market even as other provinces and producers are reporting shortages.

‘They’re Overthinking’

Some executives are more optimistic. Raj Grover, CEO of cannabis retailer High Tide Inc., told the conference that the shortages are getting better “on a monthly and weekly basis.”

“Our stores in Alberta are fully stocked. They’re generating great revenue,” he said. “I think Ontario’s decision to just open 25 stores is too much of an overstatement, they’re overthinking this a little bit.”

High Tide has applied to be one of the first retailers in Ontario, which will open its first storefronts on April 1. The province will hold a lottery to pick the successful applicants on Friday.

The shortage is one of the factors weighing on cannabis stocks, which have fallen steadily since October. The BI Global Cannabis Competitive Peers index is down 32 per cent since Oct. 16, the day before legalization. Investors are concerned the inability to meet demand will weigh on producers’ earnings.

Aurora Cannabis Inc. said Tuesday it expects to report fiscal second-quarter revenue of $50 million to $55 million, below the consensus estimate of $67.4 million. Aurora fell 4.1 per cent to $6.71 in Toronto at 11 a.m.

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.