What’s currently happening?
A year has passed since Canada has legalized the use of cannabis on October 17, 2018, and the supply of cannabis has recently taken over the demand for it. A recent report from Health Canada and Statistics Canada shows that the production of cannabis has surpassed the retail demand for it. While more and more of cannabis are currently being produced legally by new companies, there aren’t enough retailers to buy an abundance amount of cannabis supply. To combat this, Health Canada has made some changes to slow the growth of cannabis production. The new rule stated that “Any further new license applications will have to come from companies with their production infrastructure already built.” Meaning that you would need to have a facility first before you could apply for a license in selling legal cannabis. This proves as a cap since it limits the amount of producer; it would cost too much before you could even apply for a license. Another way that they are combating this is to cut the supply of cannabis from the black market. A survey conducted by Nova Scotia Liquor Corporation shows that: 40% of the people in Nova Scotia were getting cannabis legally, 40% of the people were getting it both legally and from the black market while the other 20% were solely buying it from the black market. While another survey that was released by Statistics Canada shows that Canadians bought 80% of their cannabis from the black market. Since smokers tend to buy their supply in bulk, they would prefer to get their cannabis from the black market since it would only cost them about $5.63 per gram while it would cost them over $10 for legal cannabis. Which means that the demand for legal cannabis isn’t high enough
Analysis:
Looking at the story above, we see that the story above shows the concept of supply and demand at its core. While it is much more complex than the basic economic concept, we can still use those concepts to help us understand it better. Starting, we can see that there are determinants of both supplies and demand straight away. A determinant of supply would be government involvement (implementation of new rules which limits the output) and the number of producers (black market & retailer). Black market cannabis could be considered as a substitute for legal cannabis which means that if the price of the substitute good goes down then the demand for the original good also goes down (Black market cannabis is much cheaper than legal cannabis). Before any change, the supply curve would increase while the demand curve would decrease. But after the involvement, we know the limiting of producer along with new law implementation would cause the supply curve to shift to the left – slowing the production of cannabis.
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