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Case Code: ECON090
Case Length: 16 Pages
Period: 2018-20
Pub Date: 2020
Teaching Note:Available
Organization : -
Industry :-
Countries : Canada
Themes: Micro Economics/Pricing/Global Economy/Macroeconomic Environment
Case Studies  
Business Strategy
Human Resource Management
IT and Systems
Leadership & Entrepreneurship

Cannabis Glut in Canada

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After legalization of cannabis, Canadian provinces continued to approve new licenses for cannabis producers and retailers. However, as the list of cultivation applicants continued to increase, the Canadian Government agency that oversaw the country’s federal health policy, Health Canada, was criticized for being slow in issuing licenses. According to Health Canada data, as many as 840 applicants were in the licensing pipeline as of December 31, 2018. Besides licensing problems, there were a number of other factors responsible for the apparent supply shortages, said Matt Maurer of Toronto-based Torkin Manes cannabis law group. “I don’t think it is fair to put the blame solely on the federal government,” he said, adding there could be issues getting the product from cannabis facilities onto shelves. ..

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After the legislation was passed, Canada became the biggest cannabis market in the world and was flooded with millions of kilos of pot. Hundreds of pot producers came up to take advantage of this opportunity, leading to a boom in pot stocks. Some top Canadian pot producers like Aurora Cannabis, Canopy Growth, and the Cronos Group saw exciting performance in the spring of 2019. But after peaking, most pot stocks crashed by more than 50%. Many investors thought this as an opportunity to buy pot stocks cheap, expecting that they would soon recover. ..


Analysts expected that cannabis insolvencies in Canada would continue to persist amid industry woes like oversupply issues and regulatory challenges. Cannabis oversupply, coupled with a lack of demand for production and processing facilities, would impact sales, creating more possibilities of shutdowns and writedowns, said Alan Brochstein, founder of cannabis-sector information provider 420 Investor. ..


Exhibit I: Average Quarterly Price of Cannabis in Canada
Exhibit II: Monthly Retail Sales of Legal Cannabis Stores in Canada
Exhibit III: Total Inventories and Sales – Dried Cannabis (Kilograms)
Exhibit IV: Quarterly Cannabis Price
Exhibit V: Province-wise Average Price of Cannabis in Canada