Another Huge Cannabis Supply Problem

What is an excise stamp, who has it, and why is it causing such problems?

Photo by Djim Loic on Unsplash

Licensed cannabis producers have a supply problem. The problem isn’t only with producing enough cannabis though.

While pot demand soars amid supply concerns as legalization approaches, there is another supply issue on the horizon: stamps.

Excise stamps, to be more exact. Excise stamps are the Canadian government label producers must affix to each product. They are colorful stickers telling buyers that the producer paid an excise duty to the feds. Otherwise, what was the point of legalization?

A host of excise headaches

Alcohol and tobacco companies know these stamps well. Cannabis producers, however, are still figuring how to fit them – both on their products and into their process.

Only one authorized stamp contractor operates in Canada. Ahead of legalization, that contractor produced 250 million stamps and delivered 83 million. And licensed producers are dealing with a host of other excise irks. Many companies say the stamps arrived late. There’s trouble fitting them on certain producers’ packages. Some companies are manually gluing them on to ensure full compliance with the Excise Act.

Speaking with Canada’s national newspaper, the Financial Post, Canopy Growth Inc. (TSX: WEED.TO) (NYSE: CGC.N) CEO Bruce Linton describes some of the headaches.

“You gotta put different excise tax stamps for each province. But then, the company that makes the excise tax stamp doesn’t put glue on the back. So now you have to find somebody to attach glue to stick on to the product. Who would have thought that’s a thing?” He said.

Specialized machinery

That company is getting ahead of the issue with specialized machinery. But even the problem-solving technology has problems.

“One supplier said – if I sell you the machine, the Americans will put me in jail,” Linton said. “I said, ‘Well, that’s not the case. Now, you have a contract to supply me so either those machines show up, or you have a real problem on your hands.’”

Supply bottlenecks

Vic Neufeld, CEO of Aphria Inc. (TSX: APH), echoes excise stamp woes. “It’s a real, real issue. We’ll get a batch in late, and then we’ll have to determine what products they go on, and then you’re frantically working. And you can’t just bring in an army of 50 people and say OK, for the next three weeks we just want you to do this.”

Not every company has the ability to acquire special machinery, as Canopy did, either. Newstrike Resources, for example, is manually gluing their stamps on to products.

Execution will be everything

Of course, the stamp problem is likely to be a temporary one for the nascent industry. But execution is king as the space heads toward a necessary consolidation. Investments from beverage companies and tobacco producers could also come with the added benefit of expertise in such small details.

Companies that can lick little annoyances like the excise stamp stand to accelerate just another pace forward in the race to the top.

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