Canadian cannabis topical makers hope to boost growth in niche category

Topical cannabis products, such as skin creams, lotions, bath bombs, massage oils and lubricants, became legal in Canada in late 2019, but the category remains small relative to other cannabis-derived products that hit the market at the same time, including vape pens, edibles and beverages.

Even so, some of Canada’s leading cannabis topical producers told MJBizDaily they see potential for significant growth in the niche category, citing:

  • Increasing availability of topical products and greater consumer awareness.
  • Efforts to improve knowledge of topicals among retail cannabis store employees.
  • Regulatory changes that could boost sales of cannabis topicals, such as making some cannabis health products available outside of regulated marijuana stores, which is currently under consideration.

“Maybe in terms of absolute dollars it’s not going to grow at the same dollar value as other categories,” said Mark Burton, president and CEO of New Brunswick-based Tidal Health Solutions, which manufactures CBD and CBD/THC lotions under the Riva and Tullia brands and recently started selling CBD-infused lip balm.

“But certainly, in terms of growth rate, it’s going to be one of the ones that grows very significantly over the next year.”

Room to grow

Despite the therapeutic nature of many topical cannabis products, topical producers interviewed by MJBizDaily said most of their sales are in the recreational channel, not medical.

Monthly sales of topicals through recreational channels only broke the 10,000-unit mark in July 2020, the latest available Health Canada figures show. Sales in March 2021  exceeded 24,000 units.

In comparison, Health Canada reported 2.1 million units of marijuana edibles and 1.7 million units of extracts sold in the recreational market in March.

The Ontario Cannabis Store (OCS), which supplies all licensed marijuana stores in Canada’s biggest provincial cannabis market, reported that cannabis topicals were the second-smallest category in dollar terms during the third quarter 2020, lagging behind every other cannabis-derivative product category and comprising just 0.6% of sales.

Cannabis seeds was the smallest category with 0.1%.

Data from Seattle-based cannabis analytics provider Headset shows that 2020 topical sales from adult-use stores in Alberta, British Columbia and Ontario totaled:

  • Alberta: 1.38 million Canadian dollars ($1.1 million).
  • B.C.: CA$1.29 million.
  • Ontario: CA$1.87 million (excluding online direct-to-consumer sales by the OCS’ retail division).

Retail topical sales in those provinces are on track to exceed 2020 sales this year, according to Headset data.

Burton expects topical sales to continue growing as more products hit the market and consumer awareness of the category grows.

“Call it the ‘Field of Dreams’ category, where if you build it, they will come,” he said.

“Take OCS for an example. As they start showing more and more topical products, the sales just keep building and building and building.”

Burton estimates that 2021 Canadian cannabis topical sales could be in the range of CA$25 million.

“But we see it doubling and tripling beyond that.”

Cannabis topicals are not available from the government-owned recreational marijuana monopoly in the second-most populous province of Quebec, significantly shrinking the addressable market.

Challenges of selling topicals

Spreading the word about the potential benefits of cannabis topicals may be difficult in the Canadian recreational market due to restrictions on promotions and advertising – but it’s not impossible.

Vancouver-headquartered producer Harvest One Cannabis relies on branding aligned with the company’s noncannabis topical products to help build consumer recognition of the cannabis topicals, explained president and CEO Gord Davey.

Harvest One acquired Delivra, a biotech company with established over-the-counter topical products under the LivRelief brand, in 2019.

“We bought it to continue to commercialize it in the noncannabis space but also to infuse it with cannabis,” Davey said.

Canadian consumers can now find cannabis-infused LivRelief creams at recreational marijuana stores, bringing brand recognition for those already familiar with the brand’s noncannabis products.

Canada’s promotional restrictions for cannabis ease inside age-gated cannabis stores, where Davey said in-store merchandising displays are important for introducing topical products to shoppers.

Tidal Health Solutions’ Burton said more work needs to be done to educate retail staffers about topical products.

“One of our goals is to try to get to the budtenders at the retail level, where people are going into the stores and asking for advice,” he said.

Toronto-based 48North, which sells cannabis-infused bath salts and intimacy oils under the Latitude brand, holds the Canadian rights to U.S. cannabis topical brand Apothecanna and is being acquired by major producer Hexo for CA$50 million.

Marie Lalonde, 48North’s senior vice president of marketing and innovation, said that identifying certain naturally derived topical ingredients to consumers can also play a role in communicating potential product benefits.

“While we may not make any specific medical claims, when consumers see that, for instance, a product has arnica in it – and that is a familiar product that they might see outside of the cannabis space – consumers can make the inference (about) what the product might be positioned at,” she said.

Topical product names offer an opportunity for marketing communications, Lalonde said, such as 48North’s Latitude-brand Night Shift Ylang-Ylang Charcoal Bath Salts.

“You get a sense of what the ingredients are, you get a sense of the occasion and relaxing in the evening – we can communicate those things in a compliant way.”

Hoping for regulatory reform

Relaxing Canada’s strict regulations on cannabis marketing and promotions might make it easier for topical producers to communicate the benefits of their products and increase sales, suggested Harvest One’s Davey.

“When we talk about regulations, you’re not allowed to talk about anything that helps you with pain, anxiety, sleep, relief – anything like that, you’re not allowed to speak about,” he said.

“Unless people hear about it through press releases and what you’re able to say as a public company, it’s very difficult to get your message out there.”

Another possibility is that CBD-only cannabis health products could be permitted for sale outside of regulated cannabis stores.

“I do believe that it’s going to end up just being something that you can sell over the counter at some point,” Davey said.

CBD-only products open up other opportunities for topical producers, according to 48North’s Lalonde.

“Topicals are exciting because it allows you to create a product where THC content isn’t winning as this primary predictor of demand or what the market is willing to pay for it,” she said.

“So, not only can we start to innovate and plan for where the market is going, but … when a product category is not as dramatically shaped by THC content, like we see in topicals, margins are easier to preserve and maintain, there’s less commoditization,” Lalonde continued.

“And as a result, companies (are) more motivated to innovate and grow their brands.”

Solomon Israel can be reached at solomon.israel@mjbizdaily.com.