Cannabis cultivation will need to grow 26.5% by 2022: Report
Canadians should expect pot prices to plummet in the coming years as more companies produce legal marijuana, with demand for cannabis flower expected to surpass 1 million pounds by 2022, according to one leading cannabis analyst.
Tom Adams, managing director of industry intelligence at BDS Analytics, a cannabis industry analysis firm, said Canadian marijuana prices should tumble in line with how the legal market performed alongside black market players in other markets such as Colorado. The price of pot has declined in that state by over 50 per cent in the past five years.
“The price is going to come down steeply, to put it mildly,” said Adams in an interview with BNN Bloomberg. “There’s a legality premium built into [Canadian prices] that is, at this point, about 75 per cent of the price just because it was illegal.”
The average price of a gram of recreational marijuana was $7.43 last year, while cannabis for medical purposes was $8.18, according to Statistics Canada. In Colorado, the wholesale spot price for cannabis remained fairly high for the first two years of legalization at US$4.30 a gram, but has steadily dropped to US$1.94 per gram by the end of July, BDS Analytics found.
However, Adams warned that the decline in Canadian pot prices may not be as steep as what some U.S. states have enjoyed. A significant amount of cannabis grown in the U.S. will be cultivated outdoors and those costs are consistently below those for indoor and greenhouse growing. Outdoor operations will be aided by the introduction of modern growing methods to cannabis, a crop which has yet to be fully embraced by the agricultural industry, Adams said.
“Almost every state in the U.S. has an outdoor [cannabis] grow and they can do it extremely cheaply,” Adams said. “We’re not going to really see that kind of activity happen in Canada.”
Adams’ comments come following a report he authored that found the amount of dried cannabis flower pot producers will need to grow to meet worldwide demand (including concentrates, edibles and other products) will rise to 6.9 million pounds in 2022, up from 2.1 million pounds in 2017.
“Demand growth is off the charts compared to any other consumer spending category that I can think of,” Adams said.
In Canada, spending on legal cannabis is expected to jump to US$5.5 billion in 2022, up from US$569 million last year, the report showed. Total worldwide spending on legal weed is forecast to reach US$32 billion in 2022, up from US$12.9 billion this year, with the U.S. and Canada expected to account for more than 90 per cent of that.
Canadian cultivation demand is estimated to hit 150,000 pounds for recreational marijuana and 140,000 pounds for medical cannabis this year, according to BDS Analytics. Recreational demand is expected to rise to 1.1 million pounds in 2022, while medicinal demand should edge lower to 120,000 pounds by then.
“In addition to its domestic cultivation demand, Canada is in position to satisfy a sizeable portion of international cultivation demand, with partnerships already established in Europe and South America, the most notable being with Germany,” the report said. Outside of the U.S. and Canada, cannabis demand should hit 658,000 pounds in 2022, BDS Analytics said.
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