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How Supplier Concentration Can Affect Cannabis Players

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Supplier concentration

In the earlier part of this series, we briefly discussed how the number of cannabis-licensed producers has grown over the years, which has led to the threat of oversupply. Big companies such as Canopy Growth (CGC) (WEED) and Aurora Cannabis (ACB) (ACBFF) have access to capital and can thus push out smaller players.

Some provinces have opted to keep their supplier bases small. For example, Quebec will limit its supplier base to only six suppliers. If provinces choose fewer suppliers, it likely means they will choose big players (HMMJ) with the ability to meet a large demand, which pressures smaller players (HMJR).

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Supplier diversity

However, some provincial governments in Canada are choosing diversity in their supplier base. For example, British Columbia recently announced a list of 31 licensed producers to supply recreational cannabis. This approach gives an opportunity to smaller players to actively participate in the recreational market.

Product diversification

Unlike other commodity products, value addition to cannabis can give products a new dimension. In our series How Producers Are Getting Ready for Cannabis Legalization, we discussed three broad forms of cannabis products including cannabis, oil, and soft gels.

However, companies are going beyond these three common formats. For example, recently Aurora Cannabis joined hands with a cosmetic company to develop cannabis-infused cosmetics, while some companies are developing cannabis-based beverages. In the same series, we noted that Canopy Growth’s partnership with Constellation Brands (STZ) to develop cannabis-based beverages appears to be geared at the non-user market through a more casual and acceptable format of consumption.

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