The case is about the cannabis glut in Canada that led to a price drop and excess supply after the drug was legalized in the country for recreational use in 2018. After October 2018, many investors found cannabis stocks attractive, and expected the industry to grow rapidly. But the licensed stores experienced a shortage of cannabis soon after legalization. In the early months of legalization, retail store sales in the country fell short of expectations due to provincial incompetence in opening a sufficient number of retail stores, product quality issues, and non-availability of products that consumers wanted. This compelled some customers to return to the illegal sellers in the black market. Many cannabis stores limited their working days due to shortage of inventory. The provincial distributors blamed federal regulations for the woes of the cannabis companies. Regulatory restrictions caused a delay in the issuing of production licenses and resulted in a slow retail store rollout in the provinces of the country. As a result, a number of cannabis producing companies waited to start growing crops, which led to supply problems in the market. Retail stores faced a difficulty in finding a sufficient supply of cannabis to keep pace with the increasing demand.

Following months of cannabis shortage, licensed retailers reported a cannabis surplus due to limited number of stores, high prices, and slow overseas growth. By July 2019, only 4% of the total cannabis inventory had been sold in the country, raising concerns of oversupply. Further, the cannabis companies had more unfinished products than finished products in their inventories. An oversupply of cannabis in the country led to a dramatic price drop. Oversupply and cash crunch issues forced many of the Canadian cannabis producers to report a profit decline and some filed for bankruptcy protection.

The case discusses how the legal cannabis market in Canada is still maturing, highlighting the trial and error dynamic of moving to a market equilibrium.

Economics Case Studies | Case Study in Management, Operations, Strategies, Business Environment, Case Studies

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Issues

The case is structured to achieve the following teaching objectives:

	Understand legalization of the cannabis market
	Highlight the demand and supply issues related to legal cannabis sale.
	Analyze how the Canadian cannabis industry violates the law of demand and supply
	Identify the reasons of cannabis glut and assess its impact on the market.
	Discuss how to balance the demand and supply gap in the cannabis industry.

Contents

INTRODUCTION

BACKGROUND

FROM SHORTAGE TO SURPLUS

CHALLENGES

ROAD AHEAD

EXHIBITS

Keywords

Cannabis legalization; Recreational drugs; Illicit cannabis market; Regulatory restriction; Sales; Licensed sales; Licensed retailers; Declining sales,Demand; Demand curve; Consumption; Over demand,Supply; Supply curve; Undersupply; Oversupply; Impacts of oversupply; Finished and unfinished inventory; Inventory glut; Production; Overproduction; Cost of production, Law of demand and supply; Demand and supply gap; Market equilibrium, Product pricing; Fall in price; Retail price; Price determination; Price stabilization; Cost reduction, Cannabis stocks; Capital investment; Equity investment; Profitability; Revenue loss; Writedowns; Insolvency

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