Demand for pre-rolled joints, oil caught supplier OrganiGram off guard

Underestimating the demand for different types of cannabis products has added another wrinkle into the supply shortage plaguing retailers and producers since legalization last October.

Ray Gracewood, chief commercial officer with OrganiGram, said it's no shock there have been inventory shortages in the province and other jurisdictions across Canada, but the demand for cannabis oil and pre-rolled joints caught the New Brunswick-based producer by surprise.

"We had to make some estimates when we started, and the reality is most cases we have been able to fulfil orders, but, in some cases, there are certain product types customers are asking for that we just don't have," he told CBC News.

The oil format accounts for 50 per cent of the company's medical business — a big surprise, he said. Retailers say there's "massive" demand for oil from customers who see it as part of their holistic health, he said.

The company also looked to U.S. jurisdictions where cannabis is legal for a sense of the market share for pre-rolled units, but their projections fell short again.

"The demand, I think, because of the convenience and the fact that it's already pre-done has been more than what we had expected," Gracewood said.

The available selection at Cannabis NB locations last week — when the provincial cannabis authority announced major layoffs —  was a fraction of what was initially envisioned.

The Crown corporation said roughly 250 different products would be carried across its 20 stores, but 67 cannabis products were listed for sale on Jan. 9. And 43 of those products were sold out in all 20 retail locations.

Cannabis NB laid off about 60 workers, an average of three per store. The majority of laid-off employees were on seasonal contracts, but some part-time and full-time staff were also affected.

"Entering into the third month of operation after the legalisation of adult use cannabis, the day-to-day operations have normalized despite dealing with supply challenges, and we have better understanding of operational needs in each store," Cannabis NB spokesperson Marie-Andrée Bolduc told CBC News last week.

Gracewood said it's important to understand every retailer needs to "operate responsibly" — particularly in a new market.

"Everybody is learning as we go and, I think, part of that process is understanding that the retail environment has unknowns … and as we go through the novelty of mid-October through the holiday season, the retail environment changes."

Demand expected to increase

The demand for products beyond dried flower or milled bud is expected to rise when products such as edibles, extracts, concentrates and topicals are legalized.

The federal government laid out the proposed rules for the new products in December, and they're expected to hit shelves by Oct. 17, exactly a year after recreational cannabis became legal in Canada.

"The discretion point, the comfortability of that form factor is going to be very appealing to a broader group of consumers and, because of that, there's going to be more demand," Gracewood said.

But the company is prepared for the next wave of products, he said.

"We've known that based on what we know about U.S. markets that it's likely to make up between 40 and 50 per cent of the market," he said.

"We've prepared for that. We've built that into our plans, and we're acting on those plans from a priority development and a prioritization perspective right now."

Some economists say it could be years before supply catches up with demand, but Gracewood said OrganiGram believes that's an "over assumption" — at least in his company's case.

He said in about 18 to 24 months, the company should be in a place where it's looking at other opportunities, such as international markets. But, he said, a lot can change in two years.

"This industry, especially over the past three, four years, has moved along at such a rapid pace that even for us to say what the environment will look like in two years would be generally naive."