Will Canada’s Glut Affect Marijuana Stocks?

With Canada’s opening of a legal recreational cannabis market presumably just around the corner, the country’s growers have rushed to expand capacity in hopes of claiming as much of the recreational and medicinal market as they can. The Canadian industry has seen a blistering pace of organic expansion, acquisitions and strategic partnerships in the last four months.

The problem is, all this capacity growth may end in an epic oversupply of marijuana, setting up marijuana stocks in Canada for failure.

Of course, no one can know with certainty what Canada’s demand of recreational marijuana will be, but, there are plenty of guesstimates.

According to an online report from Grizzle, Canada could expect demand to be near 800,000 kg each year. Another estimate, from uOttawa, put estimates slightly lower at 770,000 kg per year while the Office of the Parliamentary Budget officer reported an estimate in 2017 of 655,000 kg annually for recreational cannabis only. At the time of this report, Canadian medical marijuana growers were producing roughly 80,000 kg per year. There are a number of different sources for estimates, but, the general consensus seems to place numbers between 730,000 and 800,000 kg of annual demand.

Take a look at these estimates and compare them with Canadian marijuana stocks growers’ estimates for annual production.

Canopy Growth Corp. (NASDAQOTH:TWMJF)

With seven facilities already in operation on 665,000 square feet and another 3.4 million square feet in process in British Columbia, the expectation at this point is that Canopy Growth will be Canada’s largest cannabis producer. The company has offered nothing in the way of production estimates, but, a conservative guesstimate would be in the ballpark of 300,000 kg annually, if not more.

Aurora Cannabis (NASDAQOTH:ACBFF) 

In the company’s most recent report of operating results, it projected 240,000 to 270,000 kg of cannabis produced annually. Most of Aurora’s production will come from two of its facilities: Aurora Sky, with a projected yield of 100,000 kg, and its Danish Aurora Nordic project, with an estimated 120,000 kg of yield. The company’s addition of CanniMed Therapeutics, which made history as the industry’s costliest pot acquisition, is expected to increase total annual production by 19,000 kg.

Aphria (NASDAQOTH:APHQF) 

Aphria comes in a close second to Aurora, with expected annual yield of 230,000 kg of dried cannabis. Between the 100,000 kg expected from its four-phase organic project, the 120,000 kg anticipated from its strategic partnership with Double Diamond Farms, and its acquisition of Broken Coast Cannabis (adding 10,500 kg per year), Aphria is not lacking in yield estimates.

MedReleaf (NASDAQOTH:MEDFF) 

For a marijuana stocks company that only went public last year, MedReleaf is putting itself in the running among Canada’s growers. It’s Bradford, Ontario expansion combined with an existing Markham facility brings its annual production capacity to 35,000 kg. This would not suffice among competitors, so, MedReleaf recently acquired 164 acres of property for cannabis production, adding roughly 105,000 kg more to its capacity and bringing the total to 140,000 kg per year.

OrganiGram Holdings (NASDAQOTH:OGRMF)

Last week, after OrganiGram’s higher yields demonstrated viability, the company offered an upward revision of its production capacity projections. Initially, OrganiGram believed its Moncton facility capable of producing 65,000 kg per year, but, that has now been raised to 113,000 kg upon completion of its expansion in April 2020.

Supreme Cannabis Co.

No in-depth forecast of Supreme Cannabis’ production has been provided, much like Canopy Growth; however, the company has focused its energies on securing supply agreements – most of them around 1,000 kg annually. Supreme Cannabis’ seven acres of property, spanning 342,000 square feet, should actually be capable of yielding 30,000 to 50,000 kg each year.

Cannabis Wheaton Income Corp. (NASDAQOTH:CBWTF)

As a royalty company and not a producer, Cannabis Wheaton is a wild card among Canadian marijuana stocks. The company acts as a middleman, supplying growers with up-front capital for their expansions and receiving low-cost cannabis in exchange, to sell at market rates for a nice profit. Cannabis Wheaton anticipates delivery of 230,000 kg of cannabis in 2019 to sell at market prices. All partnerships and discounts considered, the company’s deliveries from small to medium sized growers still enables it to contribute roughly 150,000 kg to the market.

Sunniva

Sunniva’s recent news is a two-year deal signed with Canopy Growth to supply the company with 90,000 kg of annual production capacity. Once Sunniva’s 700,000 square foot facility is up and running, it should have no problem producing 60,000 to 70,000 kg per year.

Emerald Health Therapeutics (NASDAQOTH:EMHTF)

Emerald Health Therapeutics is another company not offering production guidance, but, guesstimates place its capacity around 200,000 kg within the next two years. This number takes into consideration EHT’s construction of a 1-million square foot facility where it will be headquartered with a 1.1 million square foot facility retrofitted in partnership with Village Farms.

This quick snapshot displays a mere handful of Canada’s weed stocks companies, accounting for just 20% of the 91 growing licenses Health Canada has issued to date.

However, the combined production capacity estimates from this snippet of growers alone accounts for 1,500,000 kg of capacity, give or take 100,000 kg, by 2020. Though this doubles the estimates for Canada’s demand, it doesn’t figure in the roughly five dozen more licensed growers and marijuana stocks companies not listed here.

One wildcard for the future of marijuana stocks in Canada is the figuring in of foreign contributions to the market.

Canada is but one country among many with the ability to ship cannabis to countries with a legal medical cannabis market. One report estimates that annual demand for medical cannabis from seven countries – Argentina, Australia, Chile, Croatia, Czech Republic, Germany and Peru – could be around 193,000 kg, with European figures potentially raising that figure as countries soften their stance toward medical marijuana.

This still leaves an overabundance of 600,000 to 1,000,000 kg to be absorbed from Canadian markets as the decade comes to a close – much of which is not likely to go to the United States.

It remains to be seen what will happen if excess cannabis floods the market, so, weed stocks investors will do well to keep an eye on future developments.

(For more updates, read Green Deals: This Marijuana Stock Might Be the Best Value Out There.)