CanadaDataNewsCannabis Inventory Levels on the Rise, Growing Risk for Writedowns

National inventory levels of unfinished and unpackaged cannabis continued to rise in April, according to a report Health Canada released last month.
David Jagielski David JagielskiJuly 5, 20195 min

National inventory levels of unfinished and unpackaged cannabis continued to rise in April, according to a report Health Canada released last month. The latest data from the federal agency punctuates a previous report from analysts at BMO Capital Markets that warned investors a supply glut of unfinished cannabis may end up being worthless and could lead to industry writedowns.

Health Canada’s cannabis demand and supply data:

Health Canada’s report shows unfinished inventory jumped 19 per cent in March and 28 per cent in April, and in that month, unfinished inventory nearly doubled since legalization began in October.

It’s a troubling trend and the rate of increase suggests that the inventory hasn’t been written down or discarded yet on a significant scale.

Health Canada considers unfinished cannabis inventory to be product “that is not packaged, labelled, and ready for sale.” Some of the unfinished inventory is believed to be set aside and will be processed into new products like edibles, beverages, extracts for vape pens, and topicals when those items are legal and cleared for sale in December. But the BMO Capital Markets analysts said its unknown how much of the inventory is unsuitable for consumption in either the recreational or medical markets, and it could become worthless and force company’s to swallow major writedowns in the future.

Unfinished inventory of cannabis oil also climbing

Unfinished cannabis oil inventories were even more volatile compared to dried cannabis and more than doubled since legalization began. Ultimately, it’s unclear how much of this is spoilage or damaged products versus products that can still be sold.

For now it’s an issue that investors can only monitor to see if it improves, especially once edible sales begin later this year. But the rollout won’t take place until December and it will take months to get the data on how the new market effects cannabis demand and supply.

Cannabis sales climbed in April

The report also revealed legal cannabis sales in Canada rose sharply in April, which falls in line with the rising sales reported in Ontario that month as retail stores began opening. Statistics Canada released data last month showing Ontario sold $19.6 million of cannabis in April, up from $7.6 million in March.

Meanwhile, Health Canada showed in its monthly Cannabis Tracking System report 8,853 kg of dried flower cannabis was sold nationally in April, which is a 16 per cent jump from the prior month and the sharpest rise since October when legalization began. Legal dried cannabis sales rose nearly 40 per cent in April since November, the first full month of legalization.

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