Back in 2018, Canada created laws that made recreational cannabis legal. But, people are still buying it on the black market. When it was legalized, the media nicknamed the cannabis bubble in Canada as Canada’s “green rush” ( with investors running aiming to get a slice of the multi-billion-dollar opportunity.
Everything good must always come to an end. Just like things went down for the gold rush that happened in the 1850s, the lustre of the green rush faded, leaving disgruntled prospectors in its wake. Investors realized that the stocks were trading on fantasy and not on fundamentals.
The CEO of New Leaf Data Services, Jonathan Rubin, believes that the legalization of cannabis in states like California and Colorado then Canada is a ‘once in a lifetime’ opportunity to start from the bottom of a brand new commodity. Rubin founded the company to track the price of cannabis, which investors and others in the industry pay to access the data.
This business model made Rubin notice that the wholesale prices have dropped by almost 17%, keeping the profit margins tight for producers. Sales have also slowed, resulting in rollercoasters for the stock prices of the publicly traded cannabis companies in Canada.
When cannabis was legalized on October 17, 2018, there were not enough supplies to meet the demand. Producers did not know which strains would be popular where and hiccups in the distribution chain were still being smoothened. Various provincial laws have also made it quite hard for the products to get to the customers.
On the other hand, where there was a shortage, producers now face a lack of enough demand due to a lack of retail outlets. Canadians purchased up to 11,707 kilograms (25,809 lbs) of dried cannabis flowers in Canada in September. But the producers had a staggering 165,000 kilograms of the product ready for sale. Producers blame the lack of continuity of points of purchase across the country for the slow transition from the black to the legal weed market.
The Cannabis Bubble in Canada
When the Canadian government decided to legalize cannabis, it primarily aimed at reducing activities in the black market. But, statistics show that up to 75% of Canadian cannabis users still get it from illegal markets. Users avoid legal marijuana since it is more expensive, and the legal shops are not enough and users prefer to deal with their local suppliers.
Producers thought that the legalization of cannabis would attract more consumers, which is not the case. The user base grew slightly from 14% to 17% of the Canadians. Only more seniors have turned to legal cannabis compared to the other age groups.
With lesser new users coming into the market than expected, the Canadian cannabis industry has deflated considerably. Also, people are yet to leave the black market since legal weed is substantially expensive, and the shops are scarce. For now, investors are still in the wait-and-see mode about the new industry.