‘Croptober’ has been a ‘thing’ for as long as I’ve been consuming cannabis.

Growing up and living in Calgary, Alberta exposed me to outdoor BC cannabis producers – that before licensing and legality happened – were breaking the law.

A friend of mine of many years was one of those growers. He’d set up a camp in the Kootenay’s in the spring, source beans or clones, find remote spots away from other growers (hopefully), and spend the summer visiting various hot springs and tending to his weed patches. He did it for years. A good harvest would net $25-30k. Cash. Done for the year, as it were. He swore by using chicken shit for fertilizer (best bang for least weight, especially if you need to pack it in), he knew where creeks and stream headwaters were, but really, growing isn’t terribly hard. Especially if you get a good season of mixed sunshine and precipitation. Biggest risks he faced was having his crop stolen and dodging RCMP checkpoints between Kimberly and Calgary post harvest.

I can recite the story of his ‘best year ever’ as well as he does, and I’ll likely never hear the end of him telling it. Sort of how barflies constantly relive the night of their game winning touchdown in high school, or the time they met someone famous. His record year? It was absolutely banner. It set records that will never be seen again in our lifetimes. “Rain in the evening and sun during the day. ALL SUMMER LONG!“.

That year was 1997. And it cratered retail weed prices in Alberta deep into 1998.

As a grower, he was fine. He’d had product mostly pre-sold. See, just like legal business, organized crime prefers certainty to risk, and to exist within a predictable operating environment. So, they initiate forwards with growers and do up a business plan. Thing about forwards though, they create price risk for the buyer. My grower friend made out fine by bringing in a bumper crop at a fixed forward price. Job done.

Reselling that though…..there was weed absolutely everywhere. Oil. Hash. Keif. Bud. Anything. Everything. Normally, by late January – sometimes into March – outdoor supply starts to dwindle, prices rise, and the indoor growers begin ramping. 1998? In July – an ounce of bud was going for $150. At that time and place, that was a 40% discount. Indoor, outdoor, closets, whatever. Didn’t matter where it came from, there was so much weed, economics stepped in with elbows and knees to tidy the whole thing up.

My friend’s grow the following year (which isn’t mentioned often) saw buyers refuse to make any firm commitments about off-take or price. He went ahead doing what he does, and without distribution, he ended up losing money and a year of his life trying to sell mouldy weed deep into 1999. It was a tough year.

I was reminded of my friend when I was reading the news this morning, about a company called ‘Speakeasy Cannabis‘. I’ve heard the name, although it’s never caught my attention. At a glance, they look like farmers. And as I write, they’re pulling 60 acres of legal weed off their farm. An estimated 70,000 KGs.

Alefia’s got 70 acres (about 50 has been planted). WeedMD, 40. 48North? 100 acres (I don’t have intel on how much was planted). A quick look at Health Canada tells me there is 34 additional outdoor grows licensed as well.

So. 70,000 kgs predicted from Speakeasy. Let’s say 50,000 KG’s of something sellable. I mentioned this to GoBlue, and he kindly pulled some reference data together for context:

Sold KGs last 12 months (including wholesale):

CGC 46,000 KGs (includes store sales).

APHA 40,000 KGs

ACB 51,000 KGs

Interpolating across what I can see, this Croptober in legal cannabis will bring more than 250,000 KG of biomass online and into the system over the next 4 months.

C-Suites across the sector will face a massive in-rush of supply and competition for facings. I expect it will hollow out the middle market, and the low end of retail pricing will find a new baseline. With ‘value’ brands now solidly under $140/oz, outdoor supply is not constrained by such nuisances like fixed overhead or corporate levies nibbling at margins – like the greenhouses and indoor growers have to deal with.

This fall’s harvest will introduce an unknown dynamic into the legal space – a space that’s already beset with an abundance of supply, and a paucity of retail outlets nationally. Health Canada may yet step in on pricing (they’ve always had a mandate to minimize ‘overconsumption’), but even if they do, margins are still going to be moved around industry participants.

The only way I can see preparing for this as an investor: lock down your exposure. Move away from unproven/speculative. Avoid outfits that aren’t putting together progress quarters consistently. Don’t linger on unproven tech, nor undifferentiated products/companies. One won’t be able to hope or wish or believe this supply coming online won’t have an impact on the entire market.

Yes, the sector is speculative, but subscribers here will have better insight and a view of the landscape than anywhere else on the internet. And this industry – in all its’ new-born infant glory – is about to spit up on it’s bib and fill a diaper. Again.

Nobody can predict the future. But in other sectors where I’ve seen supply/demand imbalances like this emerge, well managed companies immediately lean out and head straight into survival mode. That won’t be a new thing to many currently in-sector, but even those who aren’t at death’s door, may end up getting a good long look at it. And this is not a good condition for a nascent industry to be in.

Despite all of the preceding, my thoughts on Croptober’s impact on the Canadian legal cannabis industry can be summarized in a few words..

It’s going to be chaotic, there will be much that is unpredictable, and it’ll be a mess to try and manage.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. Of companies mentioned in the preceding, the author holds position in only $APHA.