Marijuana Business Magazine January 2020

January 2020 | 21 The planned capacity expansion of large, publicly traded Canadian licensed producers (LPs) could make the inventory-to-sales imbalance even worse in the coming years and potentially lead to falling prices. According to the most recent financial results, 11 of the largest publicly traded Canadian LPs indicated they have annual cannabis production capacity of approximately 853,000 kilograms. Those same LPs have indicated they plan to expand production capacity to approximately 2.38 million total kilograms in the future. Looking ahead, several factors could shrink the growing supply and demand imbalance in Canada. In particular, the following could absorb a meaningful portion of the planned capacity expansion: Illicit market conversion Based on Canadian GDP data, the illicit market represents about 60% of Canadian cannabis consumption. That per- centage has been falling since cannabis was legalized in late 2018. A continued shift from illicit to legal consumption could provide a significant offset to the rising inventory issue. Canadian Cannabis 2.0 Part of the inventory buildup might be explained by companies gearing up to manufacture a host of edibles, topicals and extract-based products now permitted under Canada’s “Cannabis 2.0” regulations, which took effect in late 2019. If the growing number of cannabis products spurs a meaningful increase in the user base or consumption patterns of new and existing customers, the rising inventory-to-sales numbers might not be as negative a signal as they appear. Export markets Several Canadian licensed producers have discussed the export market as a compelling expansion opportunity. No large, developed export markets exist today. But if several large export markets develop in the near term that Canadian companies can supply, it could help bring the current imbalance back to more reasonable levels. CURRENT FUTURE Aurora Cannabis 165,744 625,000 Pure Sunfarms (JV of VFF & EMH) 75,000 330,000 Aphria 42,324 255,000 CannTrust Holdings 50,000 250,000 The Green Organic Dutchman 65,000 219,000 Canopy Growth* 163,840 163,840* Auxly Cannabis 100,000 160,000 Cronos Group 40,150 115,150 Organigram Holdings 66,380 113,000 Hexo 39,216 108,000 Tilray* 45,896 45,896* TOTAL 853,550 2,384,886 *Expansionplans forCanopyGrowthandTilraywerenotmadepublic.Currentproduction levelused inFuturecolumn. Annual Kilograms of Cannabis Dried Flower Capacity Mike Regan is an equity research analyst for Investor Intelligence. Reach him at Craig Behnke is an equity research analyst for Investor Intelligence. Reach him at