Cannabis legalization celebrates first anniversary in Canada

Health Canada data shows that July’s legal recreational and medical sales totaled 11,387 kilograms (dry cannabis) and 9,854 liquid litres (cannabis oil). This is the fifth month in a row that sales have increased.

If the trend continues into August and September, then legal products could now represent 30 percent of Canada’s estimated consumption. Legal home growers are likely to supply a few more percentage points.

This is a huge improvement from September 2018, when only eight percent of the national demand was legal. The majority of the market is still controlled by illegal suppliers.

Volumes of cannabis oil (litres), dry products (kilograms), and recreational (recreational) products (kilograms). Estimated values for August and September 2019. Prepared by the author using HealtCanada’s data. Michael Armstrong

Expanded Producers and Retailers

The shortage of dry cannabis products during the fall and winter was a major factor in the limited success. Supplies began to improve in the people’sIncreasing retail networks came along with improved supplies. In October 2018, Canada had just a little over 100 licensed shops. Now, it has more than 500.

Some have been wildly successful. The summer sales of the government-owned stores in Quebec averaged 940,000 dollars per outlet. Ontario’s private retail stores likely did as well.

The high sales per shop were due in large part to the fact that there are only a few stores in each province. Due to the scarcity of stores, legal cannabis only captured a small fraction of each provinceJuly’sket.

Alberta and New Brunswick, on the other hand, have a much higher number of retailers per capita. This allows legal cannabis to capture a larger market share. New Brunswick’s stores averaged only $150,000 per monthly sale, while Alberta shops were barely better.

Low store densiCanada’sneficial to retailers but not to public policy.

Alberta’s retailing strategy appears to be a good one. In November, it had 65 stores open, which was more than any other province. The province now has 301. This is more than any other province combined.

On Oct. 17, 2018, customers leave a Calgary shop after buying legal cannabis while others wait in line. THE CANADIAN PRESS/Jeff McIntosh

Ontario’s policy is increasingly misguided. The initial 25-store limit seemed reasonable in light of the shortages and lack of information that occurred last December. Its July decision to only license 50 more shops, was too timid given the improvement in supplies.

Policies need review

It is, in fact, a good moment for all governments to review their cannabis strategies. Any updates that result should reflect the newfound knowledge, and not ideological reflexes.

Take Quebec as an example. Recently, it announced plans to increase its number of stores before spring. ThisOntario’srove access for the large population.

Ontario should follow this lead. The Chamber of Commerce in Ontario argued last month that the province needs to add more retailers, and there should be a clear process for doing so.

New Brunswick, meprovince’ss looking at privatizing the cannabis retailer that’s losing money. It might be best to follow Nova Scotia and place cannabis stores inside liquor store. This would allow Brunswick’s accessibility and lower operating costs.

The provinces should also reconsider their store ownership restrictions. Alberta prohibits companies from owning more than retail licenses to ensure competition. This is about 45 shops. It’s reasonable, given the size of the province.

Ontario, on the other hand, limits chain stores to 75 locations. This is too little for a state with such a large population. British Columbia limits them to only eight. This leads to retailers being inefficient.

The Ontario should also review the pricing of cannabis. Quebec sets retail prices 28% higher than what it pays to producers. This makes legal products as competitive as illicit products.

In contrast, the average price markups in New Brunswick are 54 percent; in Ontario, they’re 74 percent; and in Newfoundland, it’s 90 percent. This generates higher revenue, but black markets have a big advantage.

As the Canadian cannabis market develops, this pricing issue will become more important.

Coming Competition

The main obstacle to the success of legal cannabis was the lack of stores and products. Now that the supply and demand are improving, the challenge will be to compete on price and product quality with black markets.

This means that legal prices will have to drop, at the very least, for products with a value price. Quebec should be a model for other provinces.

While prodthat’sare improving their quality, they must also offer aromas, potency, and effects that are comparable to illicit marijuana.

The arrival of cannabis drinks, foods, lotions, and vapes at the end of December will also help. These products are important because a quarter or more of cannabis use is through foods and vapes. These value-added items give licensed producers great opportunities to differentiate themselves from illegal suppliers.

Cannabis beverages are going to be interesting. Will they replace alcohol in the social drink market, as so many producers hope? Will they be a niche product, or will they replace alcohol as a social beverage, as many producers hope?

Naturally, the illegal suppliers will also drop their prices while improving their products. The more sales are legalized, the harder it is to increase them. This dynamic could make the first year of legalization, despite its many they’re, seem like a breeze.