(This is the first installment in a series examining Canada’s mountain of unsold cannabis.)
Canadian producers have destroyed millions of packaged cannabis products and hundreds of tons of unpackaged marijuana since adult use was legalized in late 2018, according to data acquired by MJBizDaily.
Industry experts suggest the large-scale destruction reflects a variety of factors, ranging from low-quality product to a lack of retail outlets and stockpiling ahead of the 2020 launch of Cannabis 2.0 products such as edibles and concentrates.
The destroyed production underscores the woes licensed producers have faced the past three years and sheds light on the sheer amount of cannabis that has gone unsold in Canada since the launch of recreational marijuana sales in the country in October 2018.
Roughly 447,118 kilograms – or nearly 500 tons – of unpackaged dried cannabis was destroyed by licensed producers between 2018 and 2020, according to the data provided to MJBizDaily by Health Canada, the federal body tasked with regulating cannabis production in the country.
However, the actual amount in tons of destroyed cannabis is believed to be much higher because the unpackaged figure doesn’t account for packaged cannabis – defined by Health Canada as marijuana held in stock and ready for sale.
In addition to the nearly 450,000 kilograms of destroyed unpackaged cannabis, almost 6 million packages were destroyed in 2019 and 2020.
Those destroyed packages consisted of:
- 3,783,397 packages of dried cannabis.
- 1,500,396 packages of extracts.
- 714,491 packages of edibles.
- 943 packages of topicals.
Health Canada did not say why the cannabis was destroyed by producers, but industry sources cite various reasons for regular destruction, including:
- Clogged sales channels, as provinces opened stores slowly in the early years of legalization.
- Cannabis was produced before appropriate licenses had been secured, such as a sales license.
- Low-quality production.
- Production for testing only.
- Producers stockpiling cannabis in 2019 for the launch of 2.0 products, such as edibles and most extracts, in 2020.
Moreover, the overall amount of destroyed cannabis has been growing steadily since late 2018.
Reported destroyed unpackaged dried cannabis from October to December 2018 was 11,548 kilograms, or 10% of production.
A year later, that total rose to 155,780 kilograms, or 15% of production.
In 2020, Canadian licensed producers destroyed 279,837 kilograms of unpackaged cannabis, or almost 20% of the 1,473,767 kilograms of dried cannabis produced that year.
“In commercial horticulture, a 5%-8% annual loss can be expected due to insect infestations, plant disease, crop failures and bad weather. If companies are destroying 15% or more of their inventory, it should be very alarming to owners and shareholders,” said Ryan Douglas, owner of the Ryan Douglas Cultivation consultancy and master grower for Canopy Growth predecessor Tweed from 2013 to 2016.
“Massive waste and repeated crop failures in commercial horticulture are the exceptions, not the norm, and it’s no way to run a profitable business.”
As of the end of 2020, roughly 1,141,092 kilograms of dried cannabis were sitting in inventories of federal license holders, provincial wholesalers and retailers. Ninety-five percent was with federal license holders.
The inventoried cannabis combined with the destroyed products reveals that a minimum of 1,591,092 kilograms of cannabis went unsold as of the end of 2020.
Douglas noted that any new industry has its growing pains.
In this case, Canadian cannabis executives clearly were looking at overly rosy sales forecasts. That, in turn, led to large stockpiles of unsold product and excessive production capacity.
“I think the excitement and easy access to capital helped to exacerbate the issue in Canada,” Douglas told MJBizDaily.
If the product was destroyed because it was unsaleable, Douglas said, that would indicate producers were unable to grow quality cannabis as they scaled up their output.
He said that likely stemmed from a couple of factors.
“One, the quality wasn’t there in the first place,” he said.
“Second, many head growers didn’t have the experience to handle a massive jump in production capacity. Going from 20,000 square feet indoors to more than 100,000 square feet of greenhouse production is a giant leap.
“If a cultivation team doesn’t have experienced leadership to manage this change, the end product will suffer.”
‘Infested with aphids and mildew’
Mary Durocher, president of Fox D Consulting in southwestern Ontario, said the levels of destruction indicate an oversupply of poor-quality cannabis as well as a lack of diversity of cultivars coming to market – something upcoming markets in other countries could learn from.
She said some large-scale cannabis producers in Canada have been seeing crop losses of 30% annually.
Agricultural industries such as corn, soybeans and wheat typically see around 5% crop loss, she said.
“Publicly traded producers who have product that is unsaleable will store it and destroy small amounts quarterly so it doesn’t affect their financial statements,” she said.
“There are producers out there who have had product for four years sitting in their vaults. They’re waiting to destroy it so it doesn’t look bad and it doesn’t affect their books.
Durocher said the large amount of stored and destroyed cannabis is indicative of companies lacking experience growing cannabis at such a large scale.
“We have a lot of product infested with aphids and mildew,” she said.
“I haven’t seen a client have anything less than a 20%-30% crop loss annually. That’s pretty standard for the industry, but most people won’t tell you that.”
How destruction happens
Karina Lahnakoski, a partner of Deloitte’s risk advisory practice, said the actual federal regulation doesn’t prescribe the method of destruction.
Because there is no regulation behind how you must destroy the cannabis, companies can use one of several methods, she said.
“The kitty-litter method,” where cannabis waste is combined with kitty litter before disposal, is still a method license holders are using. “It’s not very efficient,” Lahnakoski said.
“A lot of companies have moved to incineration or a composting method,” she said. “The requirement is you break down the cannabis so it can’t propagate or can’t be consumed, so it’s not taken from the waste stream.
“It is completely up to the company, and we haven’t seen a standard.”
“Generally, if a company doesn’t have a lot of waste, they still tend towards that kitty-litter method, but larger companies are starting to move towards incineration.
“I’ve seen one company that has built-in their own incinerator because they anticipated having more waste.”
Matt Lamers is MJBizDaily’s international editor, based near Toronto. He can be reached at [email protected].