Two years after adult-use cannabis legalization Canadian market boasts rising sales

Canada’s legalization story has been an overarching success, despite major mistakes made by some of the biggest producers.

The adult-use industry has experienced steady growth since the first products went on sale in October 2018, and the medical marijuana market is expected to bounce back as some companies try to meet the needs of MMJ patients rather than recreational cannabis consumers.

But given the aimlessness of most top producers, their dwindling cash reserves and an inability to defend their own turf, Canadian market share might be up for grabs.

What started as a $30.1 million (CA$41 million) market in Canada’s first month of legal recreational marijuana two years ago grew to $140 million (CA$186 million) by May 2020, the latest month for which data is available.

The newest figure implies an annualized market of about $1.8 billion (CA$2.4 billion) for 2020—approximately the same figure pragmatic analysts predicted in 2018.

Disparities in growth trends persist from province to province and likely will for years to come. That’s partly because the federal government handed regulatory responsibility for sales to provinces while maintaining oversight of production.

The result? One province, Alberta, has opened more than 500 privately owned stores, or about one store per 10,000 people. By comparison, Canada as a whole surpassed the 1,000-store mark this summer.

In contrast to Alberta, other provinces monopolized sales at the government level. Quebec, the second-largest province in the country, has opened only 43 government-owned outlets, or 0.05 stores per 10,000 people. This was predicted in early 2018 and comes as little surprise.

Extracts, edibles and topicals started slowly rolling out across the country near the end of 2019—a little more than one year after legalization, which was always the plan. And Health Canada started issuing micro-class licenses, which come with lower barriers to entry for entrepreneurs.

Canada’s medical market has been surprisingly resilient in the face of recreational sales. On the eve of recreational legalization, many experts wrote off what was (and remains) by far the largest federally regulated medical marijuana market in the world.

Even though Canada’s largest producers took their focus away from their bread and butter—their medical patients—to try to capitalize on the recreational market, the overall medical sector has lost only 4.7% of its active registrations since October 2018.

That’s despite one of the biggest companies in the country, Ontario-based CannTrust, filing for creditor protection and throwing its 67,000 patients to the wind.

The medical sector still has a respectable 329,038 active registrations.

What follows is a high-level look at where the 10 provincial markets stand today. Metrics include monthly adult-use sales, active medical registrations and retail stores per 10,000 residents.

 


 

Nationwide

Monthly adult-use retail sales: $139 million (CA$186) million*
 Active medical patient registrations: 329,038** (down 4.7% since legalization)
Number of retail stores per 10,000 residents: 0.27
Retail, wholesale and e-commerce: Varies by province
Standard cultivation licenses: 283
Standard processing licenses: 255
Sales licenses: 202
Micro-cultivator licenses: 58
Micro-processor licenses: 14
Nursery licenses: 9

 


 

Alberta

Monthly adult-use retail sales: $34.8 million (CA$46.3 million)*
Active medical patient registrations: 73,629 (down 33% since legalization)
Number of retail stores per 10,000 residents: 1.15 (510 stores or licenses issued)
Retail system: Private sector
Wholesale: Alberta Gaming and Liquor Commission
E-commerce: Government-controlled
* As of May 2020

Alberta is a business-friendly province for cannabis companies. It’s the only jurisdiction in Canada to successfully open a large number of stores in short order after adult-use legalization in October 2018.

The province offers various incentives to businesses, including a nonrefundable tax credit of 10% of eligible expenditures, which has been accessed by Aurora Cannabis. Cannabis-related companies are eligible for similar business incentives such as the Alberta Investor Tax Credit, the Entrepreneurship Incubator Program and the Alberta Export Expansion Package.

Cannabis producers and processors also might be able to access a suite of cost-sharing programs through the Canadian Agricultural Partnership (CAP), a joint federal-provincial initiative, if they meet strict eligibility requirements.

The province’s medical cannabis market has been in retreat since legalization, but it’s still the second-largest in the country when measured by active registrations. With government incentives, lower taxes and real estate costs, Alberta could make a fine home for micro-class businesses.

 


 

British Columbia

Monthly adult-use retail sales: $20.4 million (CA$27.1 million)*
Active medical patient registrations: 17,053 (up 19.8% since legalization)
Number of retail stores per 10,000 residents: 0.52 (264 stores or licenses issued)
Retail system: Hybrid model: privately owned brick-and-mortar stores competing against government-controlled retail outlets
Wholesale: BC Liquor Distribution Branch
E-commerce: Government-controlled
* As of May 2020

The British Columbia government has done relatively little to nurture a robust cannabis industry since legalization. Perhaps no other province in Canada can claim B.C.’s economic potential for regulated cannabis businesses, though the province has done little to foster that growth. British Columbia is home to Canada’s largest illicit market, and the regulated sector posts underwhelming monthly sales figures.

While the illicit market maintains a tight grip in B.C., the province’s unusual retail system has a small number of government-owned cannabis stores competing with privately owned ones.

B.C. deserves credit for allowing more than 200 stores to open, but it has not allowed those stores to offer true curbside pickup and e-commerce during the coronavirus pandemic. (Online payment is permitted, but customers still must enter the store to retrieve their purchases.)

The province has levied most of the blame for its underperforming cannabis sector at the feet of the federal government—though not all provinces have shared the same problems.

The province is weighing farm-gate sales and delivery options for private stores, but it’s unclear whether the government will implement any of those steps.

B.C. does offer cannabis businesses a suite of cost-sharing programs through the Canadian Agricultural Partnership (CAP), but requirements to qualify are strict. The province funds a small program to help gray-market cannabis entrepreneurs in the Kootenay region gain a foothold in the legal economy. Meanwhile, municipalities have been a constant anvil for regulated businesses since legalization.

 


 

Manitoba

Monthly adult-use retail sales: $5.2 million (CA$6.9 million)*
Active medical patient registrations: 13,855 (up 3.7% since legalization)
Number of retail stores per 10,000 residents: 0.23 (32 stores or licenses issued)
Retail system: Private sector
Wholesale: Manitoba Liquor & Lotteries Corp.
E-commerce: Government-controlled
* As of May 2020

Manitoba’s adult-use sales have stagnated over the past half-year, largely because the province has failed to open new stores. That’s going to change. Provincial regulators are accepting applications from prospective retailers, so the store shortage should be alleviated somewhat.

The province also is planning to allow cannabis stores to open within mainstream retail outlets, which will make those businesses more economical in smaller communities. Unlike Newfoundland and New Brunswick, Manitoba doesn’t offer cannabis-specific business incentives.

 


 

New Brunswick

Monthly adult-use retail sales: $3.8 million (CA$5.1 million)*
Active medical patient registrations: 9,019 (up 14.1% since legalization)
Number of retail stores per 10,000 residents: 0.26 (20 open stores)
Retail system: Government-owned, brick-and-mortar stores
Wholesale: Cannabis Management Corp.
E-commerce: Government-controlled
* As of May 2020

New Brunswick has welcomed regulated cannabis producers with generous incentives in recent years, making it a good place to grow. The province has outlined financial incentives for producers, funded research chairs at universities and developed a community college program for cannabis technicians. The government-owned retail system is being reviewed for privatization. If that happens, as expected, the regulated cannabis landscape in the province will look very different in the months ahead.

 


 

Newfoundland and Labrador

Monthly adult-use retail sales: $2.1 million (CA$2.8 million)*
Active medical patient registrations: 4,652 (up 12.3% since legalization)
Number of retail stores per 10,000 residents: 0.5 (26 stores or licenses issued)
Retail system: Privately owned, brick-and-mortar stores
Wholesale: Private sector
E-commerce: Private sector
* As of May 2020

Newfoundland and Labrador is the only Atlantic province to open the retail sector to private ownership, and there is more room for growth if the province will allow it. Relatively lower startup costs could make Newfoundland a good home for microbusiness startups (micro licenses are managed by the federal government). In the past, the provincial government has supported cannabis businesses, even offering Ontario-based Canopy Growth $30 million (CA$40 million) in reduced sales remittances to assist in building a 150,000-square-foot production facility.

 


 

Nova Scotia

Monthly adult-use retail sales: $4.4 million (CA$5.9 million)*
Active medical patient registrations: 13,611 (down 2.7% since legalization)
Number of retail stores per 10,000 residents: 0.13 (13 stores or licenses issued)
Retail system: Government-owned
Wholesale: Nova Scotia Liquor Corp.
E-commerce: Government-controlled
* As of May 2020

Nova Scotia’s relatively small adult-use cannabis market is complemented by a steady medical marijuana market that has not lost steam since legalization. The Atlantic Provinces Economic Council (APEC), a nongovernmental policy-research organization, notes that Atlantic Canadians, on average, consume more cannabis than those from other provinces. Businesses should plan for a shortage of retail outlets for years to come pending a change of course by the provincial government. Cannabis businesses are eligible for various provincial incentives, including a refundable R&D tax credit for 15% of eligible expenses.

 


 

Ontario 

Monthly adult-use retail sales: $30.9 million (CA$41.1 million)*
Active medical patient registrations: 171,107 (up 6.7% since legalization)
Number of retail stores per 10,000 residents: 0.09 (140 stores or licenses issued)
Retail system: Private sector
Wholesale: Ontario Cannabis Retail Corp.
E-commerce: Government-controlled
* As of May 2020

Ontario’s legal cannabis market has been dominated by a few key trends: brisk growth in the adult-use market, steady growth in the medical market, a chronic lack of stores and over-centralization of production. Industry officials also blame government incompetence.

Regulatory hurdles abound and should be factored into business plans. Cannabis companies—especially producers—should operate under the expectation that the private store rollout in Ontario and elsewhere will be slow. Store owners who completed the regulatory process are being forced to wait almost a year to open their doors as bills pile up with no revenue.

Most of Canada’s large producers have an Ontario address, partly because the province is home to Toronto, the country’s financial hub. Investors rained capital over cultivators in the early years of legalization—but in retrospect, most of the large companies made poor investment decisions by wagering on large cultivation facilities. Across the province, massive cannabis greenhouses now sit empty, and many of them will probably never produce cannabis again.

Ontario’s legal cannabis industry is growing, but it will grow much faster when regulators allow fair competition with the illicit market. The province has pledged to allow farm-gate sales, privatize wholesale cannabis and create a framework for “craft” producers. Time will tell whether Ontario follows through on those pledges, however.

 


 

Prince Edward Island

Monthly adult-use retail sales: $432,688 (CA$575,000)*
Active medical patient registrations: 1,439 (down 6.9% since legalization)
Number of retail stores per 10,000 residents: 0.25 (four stores or licenses issued)
Retail system: Government-owned
Wholesale: Prince Edward Island Liquor Control Commission
E-commerce: Government-controlled
* As of May 2020

 Like most East Coast markets, Prince Edward Island’s government monopolized cannabis retail, wholesale and e-commerce. Those functions are operated by PEI Cannabis Management Corp., so there are no private-sector store opportunities in the regulated market. The island has the smallest adult-use market among Canada’s 10 provinces. For details about the provincial wholesaler’s supplier process, see peicannabiscorp.com/pages/suppliers.

 


 

Quebec

Monthly adult-use retail sales: $28.9 million (CA$38.5 million)*
Active medical patient registrations: 16,904 (up 57.7% since legalization)
Number of retail stores per 10,000 residents: 0.05 (43 open stores)
Retail system: Government-owned
Wholesale: Société Québécoise du Cannabis
E-commerce: Government-controlled
* As of May 2020

The Quebec market suffers from a chronic lack of retail stores and heavy government regulation that allows the illicit market to thrive. The provincial government has not exactly put out the welcome mat for the cannabis industry. Instead, it has banned vape pens, raised the age of consumption and prohibited home cultivation. The only large producer in the province, Hexo Corp., had to move its headquarters to Ontario because of an insurance dispute. In Quebec’s cannabis market, things can only get better; they can’t get much worse. Despite the government’s heavy hand, Quebec remains the third-largest adult-use cannabis market in Canada. It is the second-most populous province with more than 8 million residents.

 


 

Saskatchewan 

Monthly adult-use retail sales: $7.9 million (CA$10.6 million)*
Active medical patient registrations: 7,385 (down 14.9% since legalization)
Number of retail stores per 10,000 residents: 0.37 (44 stores or licenses issued)
Retail system: Private sector
Wholesale: Privately owned
E-commerce: Privately owned
* As of May 2020

Saskatchewan is one of Canada’s more business-friendly provinces for cannabis companies, but it has a relatively small adult-use market, and the medical sector is in decline.

The province’s Ministry of Agriculture allowed cannabis cultivators to access cost-sharing grants funded through the Canadian Agricultural Partnership (CAP), a joint federal-provincial program to boost agriculture and commercial food businesses across Canada.

Fifty-one retailers were selected by lottery when legalization kicked off, but now the province is ready to open things up: Private-store applications will be accepted for most communities. Saskatchewan also allows stores to sell cannabis online and to act as wholesalers—two functions most provinces kept a tight grip on.

 

NEXT:  The Lay of the Land

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