It has been almost two years since Canada became the first G20 country to legalize recreational cannabis. However, the majority of customers still get their pot on the illicit market – with a long way to go.
In the fourth quarter of 2018, legal marijuana only accounted for 21% of total consumption in Canada, although the weed became legal on October 17 of that year. Fast forward to the first quarter of 2020 and cannabis is now a C $ 2.2 billion ($ 1.7 billion) retail industry, but legal use still only accounts for 46% of the total, according to the data from Statistics Canada.
“The conversion of consumers from the illicit market is clearly happening, but it is still in its early stages”,Cormark Securities analyst Jesse Pytlak said in an email. “Retail infrastructure is still under development and useful information about consumer preferences and behaviors is just starting to emerge.”
The relatively slow growth can be attributed to both high prices in the legal market and the fact that physical stores remain scarce in large provinces like Ontario. The accessibility of physical storefronts is key to deterring consumers from illegal consumption, Pytlak added.
“The prices are still far too high compared to what we see on the illicit market”,Canaccord Genuity analyst Matt Bottomley said in an interview. “If you’re someone who uses cannabis on a regular basis, there isn’t much incentive for you to make the switch.”
However, legal consumption is expected to increase exponentially, especially as edibles – which didn’t hit the legal market until late 2019 – become more popular. “These are products that currently account for about 15% of industry sales,” Bottomley said. “If you look at any legal market, that number is at least 50%, so there’s a lot more growth expected for these types of derivatives.”
While the coronavirus outbreak earlier this year may have dampened in-person sales, it hasn’t necessarily hurt the industry as a whole – in fact, according to Bottomley, it could have even contributed to an increase in sales. revenues for retailers.
“When Covid-19 started in the form of people staying at home, from mid-March to April, it was actually one of the highest cannabis sales in the world,” he said . “There are still a bunch of potential consumers sitting on the sidelines.”
If anything, Pytlak added, the pandemic has shown the industry to be stronger than expected. “The resilience of demand for cannabis validates cannabis’s status as a recession-proof defensive industry,” he said.
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- Flowr Corp. publishes its results after hours
- Companies such as Curaleaf Holdings Inc., Trulieve Cannabis Corp., Acreage Holdings Inc. and Green Thumb Industries Inc. attend Needham Cannabis Day
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