Canada Markets closed

Cannabis shortage improving ‘sooner than we had anticipated’: BMO

Canada’s cannabis industry is finally starting to shore up the chronic shortages that dampened excitement around recreational legalization, according to a BMO Capital Markets analyst.

“It appears that the industry supply is improving sooner than we had anticipated,” Tamy Chen wrote in a note to clients on Thursday.

Government retailers and private pot shops alike have suffered consistent supply issues since Canada legalized recreational cannabis on Oct. 17, 2018. The issue prompted Ontario’s government to slow the roll out of private retail stores, and Quebec’s province-run stores to reduce the days per week they are open.

Earlier this month, the Société québécoise du cannabis said its stores will serve the public all week. Previously, Quebec stores were closed between Mondays and Wednesdays.

Alberta added to the brighter outlook on Thursday, announcing that a “steady increase” in supply at Alberta Gaming Liquor Cannabis prompted it to lift its moratorium on new retail cannabis licences. The government now plans to issue five new licenses per week.

Growers tending to cannabis plants growing

“We consider these developments to be a modest positive,” Chen wrote.

BMO previously noted that volumes recognized as revenue by licensed cannabis producers increased to 14,700 kilograms in March, from 7,500 in February. Chen attributed that to Ontario purchasing more product to supply new retail stores at the beginning of April.

“As a result, we believe new store openings in Alberta and longer store hours in Quebec should support incremental ordering from those provincial distributors,” Chen wrote. “Among our coverage, we believe Aurora, CannTrust, Canopy, and OrganiGram would be well-positioned to capitalize on these developments.”

She added that regulatory steps for value-added products like edibles, drinks, and vapes could impact the supply outlook in the near future.

“The potential downside to these developments is if Health Canada allows LPs (licensed producers) to submit notices for new value-add products this summer. In such a scenario, we would expect a number of LPs will accumulate more inventory for conversion into value-add products,” she wrote.

“On the other hand, if regulatory delays shift the value-add roll-out to early 2020, LPs with more production capacity may refocus back to supplying the current recreational market.”

Download the Yahoo Finance app, available for Apple and Android.