Canada's chronic shortage of legal cannabis expected to drag out for years

Canada's persistent shortage of legal cannabis could drag on for years. The impending legalization of edible pot will only divert more product away from empty store shelves across the country. One industry insider said he now expects that shortage to endure until 2022.

"If it was just the current product set, I'd say a year to 18 months," said Chuck Rifici, CEO of the Toronto-based cannabis company Auxly.

"But because we have edibles and a bunch of new product types coming in October, I think it'll be the better part of three years before we have true equilibrium and oversupply in the space."

Licensed producers have been adding capacity in droves. Millions of square feet of new greenhouse space has been built since last summer. But for every new gram produced, new demand is piling up as well.

"The medical cannabis market still grows by about five per cent a month," said Rifici. "We have about 300,000 Canadians accessing medically, so that's a drain on the system, as well as international exports that are starting to amplify."

Edibles industry ramps up

Meanwhile, the edible cannabis side of the industry is only starting to ramp up. The makers of Corona beer and Kim Crawford wines teamed up with Canopy Growth and expect to roll out cannabis-infused beer and wine. Budweiser partnered with Tilray, and Molson-Coors created their own joint venture with Quebec-based Hexo.

Cannabis-infused food and drink promises to open a whole new segment of the market. A recent report by Deloitte found 49 per cent of probable cannabis users in Canada are willing to try edibles. But that growth comes with a whole new batch of regulations and expectations.

Health Canada will require strict rules around shelf life and refrigeration. There will be specific rules around doses per serving. And that's where Kevin Letun and Pacific Rim Brands hope to step in. His company has partnered with labs at the University of British Columbia in Kelowna and the British Columbia Institute of Technology to dig into the science behind all that.

"Because this is a brand new consumer product and it's utilizing a schedule-1 drug that's been illegal for the last 80 years, consumers are going to want to trust the brand that they're going to be trying in the future," said Letun.

Right now, Pacific Rim Brands is working on getting the specific formulations for these products. Once that's completed, the company expects to start human testing to gather data. Essentially, the company is aiming to have formulations ready and approved this summer.

"Then, our goal is to look to either license these to existing beverage companies, potentially licensed producers or even develop our own brands," said Letun.

Letun said edibles will prove to be a much larger segment of the industry than the current smokeable pot.

"In the next ten years, you're going to see the smokeable cannabis (comprising) maybe only 10 to 20 per cent of the market," he said.

He expects edibles and infused drinks will take off once legalized. And he said that will go well beyond cannabis-infused beer and wine.

"There are so many other applications on the medicinal side too, when it comes to sleep aids or sports recovery when it comes to inflammation, pain, sports recovery."

Public consultations into the legalization of edible cannabis are open now and are expected to conclude at the end of February. As rules become more clear, the summer will see another surge in demand as companies look to get products ready for a market expected to open up on October 17.

It has only been three months since cannabis was legalized in Canada. There's something to be said for the fact that the highest profile issue to stem from such an enormous change in drug policy is a lack of supply.

That issue is moving toward resolution, perhaps more slowly than expected.