According to Health Canada, the country's health authority, further 400 tons of cannabis intended for the recreational market were destroyed in 2021, bringing with them serious economic and environmental damage.
Four years after legalization for adult use, the amount of cannabis destroyed annually is continually growing. Increasing by approximately 50% compared to the 279 million grams in 2020 and the 155 million grams in 2019, coming close to the record figure of approximately 425 million grams of cannabis unpackaged destroyed in 2021.
These data show without filters the dramatic situation of the Canadian cannabis sector, suggesting that large producers should reduce further production of cannabis based on sales forecasts.
Unsellable products increase and the rate of destruction skyrockets
In addition to unpackaged dried cannabis, more than 140 million grams of unpackaged extracts, edibles, topicals and more than 7 million packaged items, including:
- 3,576,232 packages of dried cannabis.
- 1,118,148 packs of extracts, including vapes.
- 2,421,823 packs of edibles, including drinks.
- 15,359 packs of topical products
But it could also be one underestimate, since, second Stewart Maxwell, a cannabis crop consultant based in British Columbia, "the 425 million grams destroyed are probably just a fraction of cannabis that has been grown without a market, tons of product remains in inventory in various formats."
Tammy Jarbeau, media advisor for Health Canada, said that the reasons for the destruction of the products "include: crop losses; disposal of unusable plant material; recalled products; disposal of unsold or returned products." Maxwell noted that when it comes to packaged goods, “any typo on a label may cause a recall,” leading to the destruction of millions of items. Thankfully, “manufacturers must have shrinkage insurance.”
Excessive investment and overproduction: the causes of destruction
Destruction in Canada's young cannabis industry, following the launch of recreational sales in October 2018, escalated after major producers financed and built a production capacity higher than necessary to the sector.
Jarbeau called the destruction "a part of normal business practices", attributing its causes to "increase in the number of license holders federal since 2018".
Maxwell pointed out that "the abundance of product on the market arises from consumer-driven overproduction huge investments in the sector". At the onset of legalization, many large companies “raised billions on the promise of dominating a brand new industry,” causing “a Exponential over-construction of cultivation facilities". To make matters worse, the cannabis wasn't of great quality and wasn't selling, leading "to the closure of many of these facilities."
As a result, as can be seen from the statistics, cannabis producers in Canada have been selling less than 20% of their production between the legalization of 2018 and the end of 2020.
The environmental disaster beyond the economic one
Maxwell says “the cost of destroyed product is in the billions,” but doesn't understand the cost of the facilities themselves and other resources spent on growing cannabis. "This overproduction is an environmental catastrophe and the energy required to cultivate this excess is incalculable - pointing out that - When structures costing tens of millions of dollars they are built and then closed without ever producing a quality product, the destruction of capital and energy resources is staggering."
Jarbeau said Health Canada "does not collect this information about the water, fertilizers and other resources used for cultivation," meaning there is no way to know accurately how many and which resources have been destroyed in parallel with the 425 million grams of cannabis.
Prefer product regeneration to destruction
According to industry experts, among the solutions to this disaster is the regeneration, so that producers can recover batches of products that otherwise could not be sold. Options include reducing contaminants (pesticides, heavy metals) or THC content so it can be legally sold as hemp.
"It is possible that cannabis be used in other applications", says Jarbeau, "however, depending on the activity, it may be subject to requirements under the Cannabis Act and other regulations." Fortunately, "certain parts of cannabis plants (e.g. stems without leaves, seeds and branches) are exempt from the application of the Cannabis Act" and can be reused for other uses without a license.
Sales forecasts
Among the companies that is navigating the stormy Canadian cannabis market better than its competitors isOrganigram Holdings.
While most of its major rivals have seen their revenues plummet, over the same period, the New Brunswick company has managed to grow its market share overall and its sales.
Organigram's sales, according to a recent report from financial services firm Cowen, are increased by 60%, unlike some of its rivals who have recorded a drop in sales of up to 39%. How is this possible?
The CEO Beena Goldenberg reported that part of the reason is that Organigram sells most of what it produces, avoiding massive destruction and write-downs that larger competitors face.
“First and foremost, Organigram has built its capacity over time. We too have made mistakes. But for the last two years we have been producing based on our own sales forecasts" he said in a telephone interview.
Goldenberg said that in-depth market analyzes are needed to avoid overproducing understand what customers want to buy and why. “As with anything else, it's about making sure you produce what the consumer wants – Quality is becoming the determining factor.”
“I think we're getting great results because we have always fresh products on the market - Cannabis is an agricultural product, so consumers don't want something that's six months or two years old."
