Pubdate: Thu, 21 Dec 2017
Source: National Post (Canada)
Copyright: 2017 Canwest Publishing Inc.
Authors: Michelle McQuigge and Armina Ligaya
Page: A10


Shortages feared after legalization hits next July

OTTAWA - Health Canada has nearly doubled the number of licensed
cannabis producers in the country over the past six months and new
numbers show hundreds more applicants are in the final stages of
approval as the government rushes toward national marijuana
legalization by next July.

The dramatic surge in approved and aspiring producers comes in the
wake of the agency's concerted efforts to loosen its bureaucratic
approval process and head off what many experts fear will be a looming
supply crunch for the burgeoning legal cannabis market.

In late May, Health Canada announced it would "streamline" the
approval process, which many would-be producers described as onerous
and contended took years to complete. The agency stepped up the
resources to process applications and said it would start conducting
some phases of the approval process at the same time and also made it
easier for existing licence holders to expand.

When the announcement was made, Health Canada had granted just 44
production licences since it starting doling out approvals four years
prior. Since then, however, the number has almost doubled to 80.

Provincial governments, police forces and marijuana companies have
also been scrambling to prepare for legalized recreational sales,
which the Prime Minister's Office confirmed Wednesday are expected by
July - but not necessarily the Canada Day deadline many had assumed.

A wave of pending applications has the potential to nearly triple the
number of producers operating in a legal recreational market.

Health Canada spokeswoman Tammy Jarbeau said that as of Dec. 1, 208
applicants were in the final stages of the approval process.

"These applicants have completed the security clearance process and
their application is being reviewed to determine whether it meets all
the requirements of the regulations," she said in a statement.

"A licence is only issued once security clearances have been granted,
the application meets the regulatory requirements and a facility has
been built."

Industry watchers who had been expecting a spike in the number of
licences were nonetheless surprised by the latest figures.

But Vahan Ajamian, a research analyst with Beacon Securities Ltd.,
cautioned against interpreting the high number of applications as a
sign that Canada will avoid a supply crunch.

He predicted that the influx of new producers will have only a limited
impact when cannabis becomes legal next summer.

Even if a cultivation licence is issued in January, producers will
likely need more time to line up financing, build up capacity, grow
crops and make other arrangements to supply the market, said Ajamian.

"It might lessen the shortages in the first couple of months. But I
still predict we will see shortages, sellouts - especially in
provinces and areas that haven't locked down their supply."

Many of the provinces have sounded alarm bells on the issue, urging
Ottawa to ensure the supply of legal cannabis is equal to the
anticipated demand for the product.

Nova Scotia first voiced concerns about supply earlier this month
after unveiling its framework for the sale of legal marijuana.

The government said it would prefer to see provincial supplies come
from local production facilities, although so far only two such
operations have secured Health Canada approval. Their licences,
moreover, cover only permission to grow pot, not sell it.

Newfoundland and Labrador Premier Dwight Ball said although his
province has inked its first production agreement, that alone won't
make product available until 2019.

Analyst and government figures do little to dispel fears of a supply

A report by Canaccord Genuity estimates that demand for both medical
and recreational marijuana will total nearly 570,000 kilograms by
2021. By contrast, numbers from a Health Canada showed that total
inventories of dried and oil-based cannabis in producers' inventories
totalled less than 40,000 kilograms as of June, the last month for
which data was available.

Eileen McMahon, chair of intellectual property and food and drug
regulatory practices at Torys law firm, said companies have faced an
extremely high regulatory burden in order to get a licence.

She estimated roughly 70 to 75 per cent of those who apply for a
Health Canada marijuana l i cence don' t make the cut - a much higher
rate than seen in other industries, such as medical devices and
prescription drugs.

And while the recent increase in approvals means there will be more
players ready to serve the market, the stringent regulatory and
ongoing compliance requirements that producers will have to meet once
licensed will likely whittle down the field again, McMahon said.

"This is not for the faint of heart," she said.
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