Canadian cannabis greenhouse space in retreat as outdoor capacity doubles

Canadian cannabis producers were sitting on nearly three times more licensed outdoor-grown canopy than indoor capacity in August, the latest data from the country’s federal regulator shows.

The gap between indoor and outdoor cultivation is widening at a time when producers are shuttering greenhouses and other indoor grow facilities amid a glut of cannabis that is putting downward pressure on prices.

Canada’s licensed outdoor growing area has doubled to 59 million square feet so far this year, an expansion in cultivation capacity that could put added pressure on cannabis prices if and when that production reaches the market.

At the same time, indoor growing area – including cultivation space in greenhouses – has started falling, which in turn may alleviate at least some of those prices pressures.

Licensed indoor growing area stood at roughly 24 million square feet in May. That total fell to 21 million square feet in June before rebounding slightly in August.

Health Canada began issuing licenses authorizing outdoor cultivation in April 2019.

Craig Wiggins, managing director of market research firm TheCannalysts, notes that biomass and bulk resin prices have dropped, “resulting in significant impairments across the industry, and 2.0 products have not ramped significantly to draw down that inventory.”

Wiggins also warns outdoor growers that time is running out to line up buyers.

“If outdoor growers do not have a channel to the consumer,” he said, “wholesale opportunities will be few and far between, as producers will draw from their existing inventory versus buying new inventory.”

Awash in inventory

Meanwhile, Canadian cannabis producers are sitting on a mountain of inventory.

The expanding outdoor crop is prompting concerns among some experts that Canada’s cannabis oversupply is approaching “crisis” levels.

That could lead to more financial pain for producers and force them to write down their unsold marijuana inventory as it declines in value.

As of August, producers had accumulated almost 900,000 kilograms (900 metric tons) of “unpackaged” cannabis inventory, defined as marijuana held in stock that is not packaged for sale to consumers at the retail level.

The Canadian industry is also awash in packaged product, defined as cannabis held in stock by a cultivator, processor, distributor or retailer that is packaged for sale to consumers.

In August, producers, wholesalers and retailers held almost 10 million packaged units of cannabis edibles in stock, including beverages.

Sales of those products were only 1.4 million units that month.

Lisa Campbell, CEO of Mercari Agency, a Toronto-based cannabis consultancy, said outdoor harvests could exacerbate the supply-demand imbalance.

“With the most recent outdoor harvest, cannabis continues to be stockpiled by the metric tonne,” she said.

“The Canadian cannabis industry is experiencing an oversupply crisis,” she said, “as the cost of destruction is often more economical than the cost of sale for bigger licensed producers.”

No international rescue

Experts warn the extra slack won’t be picked up internationally in the medical market any time soon.

Michaela Freedman, an international cannabis business consultant and founder of Toronto-based MF Cannabis Consulting, said producers with appropriate certifications will not find a market for the vast majority of their excess medical cannabis.

Canada’s exports have experienced steady growth, but the overall volumes remain insignificant.

And they’re mostly going to only a few markets – a warning for producers that commercializing medical cannabis exports remains much easier said than done.

“It’s not that big when you look at the volume they’re exporting,” Freedman said of the current export market.

“All the work that has to go into getting that product out the door is just not a lucrative or sustainable business, if that’s what you’re relying on.

“Their expectations are very unreasonable.”

Matt Lamers is Marijuana Business Daily’s international editor, based near Toronto. He can be reached at [email protected].