Cross-Border Dispatches on the State of Cannabis Legalization

Massive profits and empty shelves followed legalization in Canada, while some US states are seeing a “bloodbath of prices” thanks to an oversupply of weed.

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Nov 21 2018, 7:20pm

Image courtesy of VICE. 

In this first installation of VICE Canada and MERRY JANE’s cross-border weed trend series via Sticky, we look at the availability of product in North America’s legal weed zones.

Spotty Availability Is Harshing Canada’s Recreational Buzz

Legal weed has proven very popular in Canada, but there is nowhere near enough supply to meet demand.

While sales following legalization on October 17 were massive in some provinces—one chain in Alberta claimed it made $1.3 million in five days—several provinces have expressed major concerns with supply. In Quebec, stores will only be open four days a week due to a shortage, while New Brunswick recently closed 10 of its 20 province-run stores due to shortages, and chains in Alberta, where pot shops are private, have also had to close their doors due to not being able to restock. Online shops too have seen many products listed as out of stock, while even medical supply has run low.

Experts and industry insiders told VICE there are a number of reasons why supply isn’t meeting demand right now.

Dan Sutton, CEO of BC-based LP Tantalus Labs previously told VICE one of the main challenges is LPs haven’t yet mastered how to mass produce decent quality cannabis. Sutton said the cannabis plant is very susceptible to crop loss, and master growers either come from a black market background, handing smaller operations, or industrial farming where they were dealing with crops that presented different challenges.

Sutton said cannabis is a sensitive plant that’s difficult to control without pesticides—which is what Health Canada requires. Over or under irrigating, misusing nutrients, powdery mildew, root rot, and botrytis (bud rot) are all things that can ruin the crop.

In short, he said the institutional knowledge needed to reliably grow massive amounts of cannabis simply doesn’t exist, and LPs won’t figure the supply issue out for the next 18 months.

Many say Health Canada didn’t license enough LPs in time to meet demand, or made the regulations that LPs have to follow too rigid. Health Canada did speed up its licensing process in the lead-up to legalization, but some say that was too late to have enough weed in time for October 17.

Jordan Sinclair, vice-president of communications for Canopy, the largest legal weed producer in the world, told VICE a larger than anticipated demand, logistical issues in getting product onto store shelves, and yields that are still a few months away from being harvested are all factors contributing to the shortage. He said while LPs have been expanding, not all of those expansions will be be producing at full capacity for a few months.

Rosalie Wyonch, an analyst with C.D. Howe Institute, a non-profit research firm, told VICE Canada’s legal weed supply is only likely to meet 30 to 60 percent of demand for at least a year.

She said part of the issue could be provinces, which are the wholesalers of weed across Canada, may not have secured enough supply to meet demand. Quebec in particular only secured half of what demand would be, she said. But provincial spokespeople in BC, Alberta, and Nova Scotia have also told media outlets that LPs have failed to deliver on supply.

The Nova Scotia Liquor Corporation told the Canadian Press LPs came through with less than 40 percent of the amount of cannabis they agreed to supply.

Most experts predict the supply issue will sort itself out over the coming year, as LPs master mass producing cannabis and previously approved expansions yield harvests. But only time will tell.

In the US, Some States Grow Too Much Pot While Others Fall Short

Cannabis was America’s hottest cash crop before legalization began spreading across the US, but supplies have proven inconsistent as new state-approved markets come online. So it shouldn’t surprise anyone that some US states, like Canada’s provinces, are still experiencing weed shortages as supply fails to meet demand. Unlike Canada, though, some states actually have too much weed.

Nevada and California have periodically struggled with pot shortages, while Oregon and Washington, on the other hand, have seen significant plummets in pot prices due to severe oversupply. Meanwhile, Colorado and Alaska have seemingly struck a sustainable balance, though Alaska could experience a surplus soon, too.

Why is this happening? How can multiple states experience weed shortages and overstocks, when many of these same states share borders with one another?

It boils down to regulations and conflicts between federal and state laws.

At the federal level, cannabis remains a Schedule I drug under the Controlled Substances Act, right alongside heroin. Although canna-legal states such as Oregon (where there’s too much legal weed) amended their drug laws to allow recreational pot, businesses cannot transport cannabis products across state lines, even to a bordering state with legal cannabis such as California (where there’s too little weed). This is because the US Constitution gives the federal government the power to regulate interstate commerce. Once cannabis crosses state lines, it becomes subject to federal jurisdiction, and Uncle Sam still views marijuana as a menace.

At the state level, a mix of overregulation and necessary oversight is jamming up the gears of legal ganja, too. California, for instance, implemented strict testing, packaging, and labeling rules this summer for all legal weed products. These rules apply retroactively to stuff that was already on the shelves when legal sales began in January of this year, forcing licensed pot shops to dump anything that doesn’t meet the new requirements. To be fair, the Golden State gave weed vendors a six-month grace period to sell off older inventory, but now that window has closed—any unqualified products under the new rules must be destroyed (or, as it goes with less scrupulous businesses, diverted to the black market).

In contrast to California, Nevada’s shortage woes were largely due to limited licensing of canna-businesses rather than testing and labeling issues. The Silver State originally only allowed liquor distributors to transport legal weed from producers to dispensaries, and the learning curve from booze to bongs proved steep. With a one-to-one producer-to-retail-store ratio, and an annual wave of 55 million tourists visiting Las Vegas alone, legal cannabis can’t move from cultivator to customer fast enough. The shortage got so bad that Nevada’s governor declared a state of emergency because the state didn’t have sufficient legal pot on store shelves. First-world problems, eh?

So how did Oregon and Washington State end up with too much cannabis? Relatively lax regulations regarding production. Washington’s producers grew way more weed than people were buying, causing prices to nosedive. Described by one Washington cultivator as a “bloodbath of prices,” ounces are selling in the state for $40, and grams can be fetched for less than $1—cheaper than a gram in Uruguay.

Oregon, like Washington State, simply got the green fever as well. The state has arguably issued too many licenses for canna-businesses, and the local market can’t consume enough of the swelling pot surplus, leading to steep price drops and a thriving black market for bud. The latter concern is raising the prospect of federal intervention in Oregon and elsewhere, increasing political pressure to stop oversupply.

In the US, there are a few potential paths forward. One comes from Adam Smith, the director of Oregon’s Craft Cannabis Alliance, who is behind a lobbying effort to allow states like Oregon to ship their excess weed to other canna-legal states that may not have enough. As mentioned previously, interstate transfers would violate federal law, but Smith plans to start by pushing the Oregon legislature to approve the practice first in 2019, and then presumably campaign for a federal-level fix.

Another option is for individual states to continue amending their regulations until they can find the right balance between in-state supply and demand.

The simplest and most sensible option would be for the federal government to legalize weed. But as Canada has proven, bureaucracies, more often than not, can get in the way of a smooth rollout. Regardless, federal legalization has taken its first small step toward cannabis’s giant global leap. All eyes are on the Great White North now.

Follow Manisha Krishnan and Randy Robinson on Twitter.

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