Business
‘Croptober’ pushes Canada’s cannabis inventories to record 1.4 billion grams
Canadian cannabis cultivators produced a record amount of marijuana during last fall’s “croptober” – when most of the outdoor harvest comes in – despite falling retail prices and already-bulging inventories.
Cannabis produced in September, October and November 2021 totaled 561,459 kilograms – or about 560 tons – of dried cannabis, bringing the total amount stored by licensed producers, wholesalers and retailers to 1.4 billion grams (roughly 1,543 tons) as of the end of November, according to new Health Canada data.
The data suggests Canada’s cannabis industry still suffers from a serious supply-demand imbalance, even after major greenhouse closures and insolvencies.
Last year, prices declined for every cannabis product category, partly because of overproduction.
Among the 1.4 billion grams of dried cannabis in inventory are 1.26 billion grams of unpackaged flower.
Most of that product is thought to be unsellable for various reasons, including poor quality or low THC scores.
New production in 2021 totaled at least 1.6 billion grams, a figure that continues to rise as more companies enter the cannabis industry than leave the sector.
“Despite significant M&A activity and consolidation within the group, flower sales are becoming more dispersed as a result of more companies competing in the flower category,” Pablo Zuanic, an analyst with New York-based investment banking firm Cantor Fitzgerald, wrote in a recent note to investors.
Zuanic noted that more companies than ever are competing in the dried-flower category, which accounts for about three-quarters of cannabis sales in Canada.
In the second quarter of this year, 126 companies were competing in the category, up sharply from 87 in the second quarter of 2021 and 53 in 2020, the analyst wrote.
Consolidation and restructurings have barely slowed the number of new companies entering the ultracompetitive market.
As of July, there were 886 licensed cultivators, processors and sellers under Canada’s Cannabis Act.
One year ago, there were 730.
In 2020 and 2019, the numbers were approximately 440 and 206, respectively.
Improved efficiencies
In addition to more producers, Bill MacDonald, professor and coordinator of Niagara College’s Commercial Cannabis Production program, suggested inventories might still be rising because licensed producers are getting better at growing marijuana at scale after struggling in the early years following the launch of the country’s adult-use market in 2018.
“What I think is happening is the ones that are producing are getting a handle on how to produce, and they’re getting higher yields,” he said.
“So even though you close down a bunch (of greenhouses), the ones that are remaining are learning from their mistakes, they’re getting better growing techniques.”
MacDonald expects to see more closures in the coming months and years.
“There’s just so much (inventory) out there,” he said.
MacDonald said the overproduction by large producers threatens the survivability of small and midsize growers.
“The smaller players are producing great product,” he said, “but it’s hard to compete when prices have been pushed so far down due to the large inventories. I hope the micros can hang on.”
More licensed space
Canada had more licensed outdoor growing area than ever last year, but industry sources expect to see a rightsizing as the economics for outdoor production become less and less appealing.
According to Health Canada’s latest data, licensed outdoor growing area rose to a record-high 713 hectares, or 76,746,681 square feet, as of the end of 2021.
“What we’re going to see this year is a reduction in the amount of harvests around ‘croptober,’ because some people have definitely pulled back and they’re recognizing that market sales have not been great enough,” said Av Singh, cultivation expert at Nova Scotia-based Flemming & Singh Cannabis.
“We just don’t need to produce as much outdoors as certain folks were doing.”
Federally licensed indoor and greenhouse growing area for marijuana, by contrast, fell to 18,908,337 square feet, which is 21% lower than the all-time high reached in mid-2020 of 23,865,914 square feet.
However, that is also thought to be too much space to accommodate a market the size of Canada’s.
The overproduction is continuing to an ever increasing amount of product that must be destroyed because it can’t be sold.
Canada’s federally regulated producers destroyed 425 million grams – or 468 tons – of unsold, unpackaged dried cannabis last year. That compares with 279 million grams of destroyed product in 2020 and 155 million grams in 2019.
Additionally, more than 7 million packages of adult-use marijuana were sent for destruction across the country in 2021.
Singh said the industry’s stewards of capital are still broadly misallocating resources, resulting in the country producing way more cannabis than it needs.
“The bias is still around poorer quality product,” he said.
Extract price pressure
Singh said most of the outdoor production that doesn’t go straight into semipermanent storage goes into extract products such as vape pens.
He said a comparatively small number of growers are producing outdoors for the dried-flower market.
That could mean the impact from the recent “croptober” overproduction on the overall dried-flower market will be muted.
Where prices could see further downward pressure is in the extracts category, especially vape products.
“Sellable flower should be happening from product produced in greenhouses and indoor, so the huge amount of new (largely outdoor) inventory should not influence sellable flower (prices),” Singh said.
He said companies producing extracts with more expensive inputs from indoor and greenhouse material would be at a competitive disadvantage compared to companies using more abundant, and cheaper, outdoor cannabis for their extracts.
Source: https://mjbizdaily.com/croptober-pushes-canadas-cannabis-inventories-to-record-1-4-billion-grams/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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