Many might wonder how it’s possible that the Canadian cannabis market is still struggling with supply shortages despite companies reporting record production capacities? As it turns out, one top cannabis CEO has gone on to say that he thinks the industry has been lying, with companies deceiving investors, buyers, and even government officials about how much pot they can produce. Tilray (NASDAQ: TLRY) CEO Brendan Kennedy made news earlier today when his company beat Wall Street’s expectations for the firm, but he added late Tuesday his opinions on the ongoing supply shortage in Canada.
According to MarketWatch, Kennedy went on to say that while there should be a supply glut in the cannabis industry in the months and years to come, it’s quite surprising that shortages are still a thing. In fact, Tilray has been having difficulty finding other sources of high-quality marijuana in sufficient quantities, a problem that many other companies have been struggling with as low-quality pot is quickly becoming harder to sell.
As it turns out, Tilray’s suppliers haven’t been able to produce enough cannabis, falling well below what they promised to investors and partners leading up to Canada’s legalization. “Some of them were lying about their funded capacity,” Kennedy said. “If I can go back 18 months, 12 months ago, I would have invested another $100 million, $200 million in terms of Canadian cultivation. That was a – that was a mistake. But we believed, we believed all the hype 17 months ago,” in regard to the supply capacities promised by Tilray’s partners.
The main reason why this has happened is that as the cannabis industry was maturing, investors began to use new metrics besides revenue or profits to evaluate these companies, especially since recreational sales in Canada couldn’t occur until October 17th, 2018. One of these measures, called “funded capacity,” referred to the amount of growing capacity a company had at its disposal without needing an extra capital raise. While many companies would boast impressive growth figures assuming future influxes of capital were provided, this metric served to provide a more secure appraisal of the firm’s cultivation capacity.
While this seemed to be reasonable on paper, in reality, many Canadian public companies and their cultivation capacities were entirely theoretical as many had still to prove that they could grow cannabis at scale at the cost-per-gram figures they quoted. As it turned out, the reality of the situation meant that mistakes, errors, and difficulties were all impeding the process.
Even before this, cannabis companies were valued on metrics that seem strange by today’s standards. Back in 2016, the number of medical patients they could claim was the main figure analysts used, while before that, valuations were based on the number of secure vaults they had built.
While the idea of looking at the “funded capacity” was a good idea at the time, even the people who first originated the term admitted that the number wasn’t meant to be relevant to investors or producers in the long term and is grossly overused in today’s market.
Regardless, it seems that Canadian cannabis shortages are going to continue for a while longer still as companies still need to live up to their original promises of how much marijuana they can produce.