As we look at Legal Supply vs Demand and it’s eventual equilibrium, I think it’s important to start thinking about Legal Supply a little differently.

A good deal of Joe Retail is looking at 2019 and wondering if Legal Supply will finally match up with Demand. This is usually accompanied by comments that with new formats there will be greater consumer demand, as new consumers (who don’t want to combust) enter the market, and those using illicit market formats migrate to the legal market as formats are introduced.

A lot of the new capacity coming on to the market is massive scale projects. The quality of this product is not dialed in right now, and until genetics and several crop rotations aide in the data set this product will likely head to extracts.

So that got me to thinking… In order to figure out Legal Supply v Demand equilibrium you have to start stratifying the Legal Supply into the “Demand Buckets”.

Dan Sutton at Tantalus is not competing with this mass scale product directed to non flower formats.

Nothing new here. Products are often stratified to figure out sub components of supply v demand.

Where, in my mind, this becomes interesting is that huge supply of product destined for new format consumption is going to run into something very interesting.

• Brand New manufacturing assets like cookie lines, chocolate and candy lines, transdermal lines, vape filling lines,…
• Brand New supply chain to provide the ingredients for edibles or the components for vaporizers.
• Brand New staff running these new lines.

All of the above is far more complex than putting cured cannabis in a baggie, something a number of LPs are struggling with presently.

When Honda was expanding in Canada they once told me “they never do 3 news” (Product, Facility, Staff) If they build a new facility, that requires new staff, they build a vehicle at the new facility that they build elsewhere.

Unfortunately cannabis LPs don’t have that luxury. It’s all new. And the products of new formats, and their manufacturing, will be new to each and every LP.

The complexity level of LPs that are going to compete in the new format arena is akin from playing Little League baseball to Major League Baseball.

This is one of the reasons why we are seeing the strategic partners being sought. Bring in at least some professional experience to run the lines and supply chain.

You complicate the above with current Health Canada regulations that limit production of new formats to a “cannabis only” manufacturing facility. Pair that with Food and Drug Inspection Agency getting involved…. woohoo boy, things are going to get interesting.

It’ll be interesting to see how a glut of low end flower supply that cannot make it through the Production Constipation affects cannabis prices.

Does the lower end market price collapse? Do the glut of extract driven supply put downward pressure on the existing oil format, crunching margins? Does the potential low end supply glut put downward pressure on the upper scale market price or the mid range?

We talked about 2018 being the “Year of the Build Out”, and 2019 being the “Year of Execution”.

I figured this would make for some interesting discussion in our Community.

Interested in everyone’s thoughts.

GoBlue