Canadian Economists Fear That Cannabis Legalization Will Lead to Overproduction Issues

Canadian Economists Fear That Cannabis Legalization Will Lead to Overproduction Issues

by Zach Harris | NEWS |

With eyes on Oregon, where pot prices are dropping and oversupply is bleeding into the black market, Canadian market experts want the country’s legalization rollout to avoid the same pitfalls.

As Canada prepares to make history as the world's largest country to legalize the possession, use, and sale of recreational adult-use cannabis, academics and experts across the Great White North are understandably looking towards their southern neighbor for examples of legalization's successes and missteps. And while Colorado's tax structure or California's packaging standards may be inspiration for Canadian regulators, at least one British Columbia economist has flagged Oregon's legalization rollout woes as what to avoid in Canada's impending pot market.

According to Global News, Stephen Easton, an economics professor and senior academic fellow at BC's Fraser Institute, is worried that the Beaver State's severe legal weed overproduction problem could surface in Canada once widespread legalization goes into effect later this year.

"There is no reason to think it won't happen here as well. In a broader sense, we are adding legal production to an already robust illegal production," Easton told Global News. "Consumption may simply not increase in proportion to our ability to grow."

In the three years since recreational cannabis sales first began in Oregon, the state's regulatory body, the Oregon Liquor Control Commission (OLCC), has awarded about 1,000 cultivation licenses among 2,014 applicants. With so many pot producers and no limit on how much they can grow, the state's retail weed market has seen nearly one million pounds of overstocked product sitting on shelves. Thanks to greater supply than demand, those backlogged turkey bags have lead to cannabis prices dropping, dispensary layoffs, and the unwanted attention of U.S. Attorneys and federal authorities. According to the most recent statistics, experts predict that Oregon grows three times as much bud as state residents and visitors actually consume.

In Canada, regulators have restrained from imposing any strict cultivation cap or acreage limits on licensed growers, but they've also approached the transition out of prohibition more slowly than Oregon, adding a number of safeguards to try and establish a regulated market that is safer, more accessible, and more economically viable than the existing black market.

To date, Canada has only licensed 104 potential recreational cannabis growers out of nearly 2,000 applications, with a permit review process that takes more than a year to complete. (In Oregon, receiving a license takes a fraction of the time, usually between 2-6 months.)

Dan Sutton, CEO of B.C. cultivation company Tantalus Labs, said Canada will avoid Oregon's oversupply issues due to "far more relaxed regime." He added, "Right out of the gate, you've got a far more sophisticated production regulation regime [in Canada], which inherently applies a barrier to entry."

Canada's legal cannabis growers will also have a number of benefits and financial incentives not seen by Oregon cultivators. While America's continued federal prohibition has prevented Beaver State operators from exporting their overstocked product across state lines, Canada's move towards nationwide legalization means that growers in Vancouver and Toronto will be able to ship their bud across the country to seasonal ski towns and underserved provinces. Additionally, Canada's MMJ producers are already sending products to medical marijuana markets in Israel, Australia, and more, with recreational growers expected to follow suit.

Further, even as the overproduction of pot in Oregon has already drawn the ire of federal officials and thrown a wrench in the industry from a business persective, the prevalence of cheap and readily-available regulated cannabis is still a perk for customers. And while Oregon may have thousands of pounds of shoddily-produced outdoor bud, Tantalus Labs CEO Sutton pointed out that high-grade product cultivated by craft farmers is still fetching above average prices at Oregon pot shops, suggesting that at least some customers around the world still value quality over quantity.

"In Oregon, while there are massive over-supplies of commodity-grade quick and easily grown cannabis, there are still cannabis products that sell for $15 or $20 a gram at the dispensary level," Sutton told Global News. "All cannabis is not the same."

Adult-use legalization is set to go into effect in Canada sometime before the end of the year, but regulatory debate has slowed the process and could delay the start of legal sales until the beginning of 2019.

Follow Zach Harris on Twitter


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Zach Harris is a writer based in Philadelphia whose work has appeared on Noisey, First We Feast, and Jenkem Magazine. You can find him on Twitter @10000youtubes complaining about NBA referees.


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