Canadian CANNAINVESTOR Magazine October 2017 - Page 128

The chart on the right side therefore is the prevailing view, at this time, where the overall demand curve shifts upwards to the right to some point less than the higher ceiling price but production and supply are fixed causing the forecasted supply shortage. This reality likely played some part behind the May 26th announcement by Health Canada to fast track, streamline, and accelerate the approval process for granting production licenses. When CannaInvestor Magazine just the day before, on May 25th, released its May/June issue that recommended Investors consider a strategy of investing in the shares of latter stage ACMPR applicants there was speculation by some that the Health Canada information was leaked because how else could that timing be explained. A fundamental understanding of Economics is the answer. Licenses cap the production of any LP. The sum of the total production (plus vault capacity) allowed is the maximum supply and if the demand exceeds that supply there is a shortage so the only way to address that shortage, given the effective ceiling price, is to increase the total supply allowance – in other words, grant more licenses. This supply management approach adds a whole layer of complexity.

The complexity of the supply and demand of marijuana does not end there because every Province or Territory may not be adopting the same age limit and distribution networks. We also have a sense that this framework of allowing these jurisdictions dominion over distribution could create inter jurisdictional trade barriers such as exists in the beer industry.

The demand and supply curve suddenly starts to resemble:

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