This summer, the cannabis specialty trade press discovered a story that has been floating around in the press, if not Canadian corporate cannabis company reports, for some time now.
Namely, that the amount of legally grown cannabis in the Canadian industry that is destroyed, and has been since the advent of adult legalization, is as shocking, in its own way, as adult-use cannabis reform might have seemed just a decade ago.
According to Marijuana Business Daily, a top trade media company, the amount of destroyed cannabis in Canada has been growing steadily since the fall of 2018—or the start of the Canadian recreational market. Between October and December of that year, in fact, Canadian producers destroyed just over 11 tons of cannabis. The next year, in 2019, a full 15 percent was destroyed. In 2020, that amount rose again to 20 percent of all dried cannabis produced for the market.
Indeed, according to MJBiz, Canadian cannabis producers have sold less than 20 percent of their output since the beginning of adult use legalisation in the fall of 2018.
Vice reported in September of that year that for every kilogram of legal cannabis consumed in the previous year, eight kilograms were destroyed.
Is Large-scale Destroying of Canadian Cannabis Really a Surprise?
The answer to this question is, of course, a resounding no. There have been reports of such activities going on in both the industry-watching blogosphere and other sources for some time now. Indeed, it was in the fourth quarter of 2018, just as Germany was trying to decide on a much-stalled domestic bid (and yet another lawsuit against the same arose, pushing the decision back until April 2019), when the first indications of this kind of waste made itself known.
This includes the remarkably prescient decision of then CEO of Canopy Growth, Bruce Linton, to suddenly decide, after the firm had been in the running for German cultivation, to switch gears and buy the only (synthetically sourced) manufacturer of dronabinol in Germany.
Beyond cryptic reports and strangely unconnected moves by the largest companies, there are several reasons for this massive destruction of crops—some of which are surprising—and some of which are not.
On the unsurprising side—a great deal of legally grown cannabis had to be destroyed because of contaminants—both from mould and aphid infestation. This has everything to do with the stability of the seeds being used as well as production techniques. Indeed, such issues were also seen on the European side of the conversation, leading to the mandatory radiation of all cannabis brought in from both Canada and Holland.
It has also led, certainly in Germany, to distributors searching a bit further afield for sources of cannabis. Many Canadian cultivators that planned on exporting product to Germany have often gone south (at least in Europe). If not to Israel.
Beyond this, of course, the reality is that the legal cannabis market’s biggest competitor has been and continues to be patient and nonprofit grows. The ability of patients to grow their own has been a constitutionally guaranteed part of the discussion since the turn of the century. Indeed, it is what the legal industry itself was birthed by and from.
Yet in all of this, of course, there looms the bigger discussion—and this is perhaps the most surprising part of all of this. The leeway and lack of complaining from investors who have taken stock in companies, which have literally thrown billions of dollars into this conversation for at least the last eight years is still quite remarkable. This includes the smaller, retail investors as well as larger, corporate entities that bought into the existing industry.
There have been, of course, slews of investor lawsuits against the industry—most of which are largely unsuccessful.
Just as in the railroad rush, or the gold rush before it, economic booms are far from guarantors of either wealth creation or market efficiency.
In the case of the cannabis industry generally, there has been a great deal of money thrown at a certain group of companies, which have established global brands. Earnings per share return to investors, however, have been dismal from the get-go.
What Next for the Industry?
One thing is for sure. This level of agricultural and financial waste will not continue unabated. The market itself is, while still highly fragmented and inefficient, much more efficient than it was.
Cannabis, after all, is an agricultural commodity. Just like tomatoes.
And just like all agricultural commodities, no matter their ultimate destination, there are market economics that drive cultivation through end use. Cannabis is still in the process of normalization, which affects every aspect of the market.
In the short term, as global markets begin to truly integrate, especially with the advent of full and final reform, it is inevitable that such waste will occur in both state and national markets.
In the longer term, however, such waste will diminish, rightly labelled as completely unsustainable in every possible way.