The Canadian cannabis landscape is about to expand in a big way. The next wave of cannabis regulations legalizing cannabis products are set to come into effect Oct. 17, “Cannabis 2.0” or “Legalization 2.0,”and
the race is on for producers to stock store shelves by mid-December.
Infused edibles, beverages, topicals, concentrates, and more will be available for purchase in the new year. Though it will probably take a bit of time to ramp up, a
Deloitte report estimates the value of the Canadian cannabis market at $2.7 billion.
With higher margins on derivate products than on dried flower sales, it’s hard to find a cannabis company that isn’t invested in the future. But which products will come out on top?
Though it’s hard to predict outright, a combination of results from the US marketplace and Health Canada’s announced regulations let us break down which products have a good chance to rule the market.
Say No to Alcohol and Yes to Coffee and Tea
There is a lot of hype for infused cannabis beverages, especially in the major LP space. The biggest players include
Canopy Growth Corp. (
TSX:WEED)
and its massive backer
Constellation Brands Inc. (NYSE:STZ), a joint venture between
HEXO Corp. (
TSX:HEXO) and
Molson Coors (
NYSE:TAP), and
Organigram Holdings Inc. (
TSX: OGI) investing in nano-emulsion technology.
But key regulations have probably thrown some product plans for a loop. Health Canada’s regulations make it clear that no alcohol or alcohol association can be made by proposed drinks, which includes words like beer or cocktail or alcohol brands being disallowed.
Caffeine will be permitted in products, but only if it’s naturally occurring and doesn’t exceed 30 mg per package. That means drinks with added caffeine like energy drinks are out, but teas and coffees are in.
Surprisingly to some, infused-tea will probably be a strong market player. Deloitte’s report found that cannabis-infused tea is the most popular beverage choice for current and likely consumers.
Chocolate a Certainty, Gummies a Fading Hope
In almost every major US recreational cannabis market, cannabis-infused gummies are the kings of the edibles market. Colorado has had gummies as the
most popular edible since 2016, seeing 53% sales growth between 2017 and 2018.
The bet is that the Canadian marketplace would react the same, and consumers have responded that gummies are on the top of their most-wanted products list. But Health Canada regulations specify that edibles can’t be made attractive to minors in any way.
Any foods that could be confused for kid-friendly snacks, or that incorporate bright colors or packaging are on the chopping block. Because the regulations aren’t entirely clear, some producers will still push through and see if they can get certain gummies approved, but far safer bets are cookies, brownies, and chocolates.
Of the three, likely consumers in Deloitte’s report preferred cookies by a narrow margin. Chocolate used to be the most popular edible in many US markets before gummies took off, but it has been regaining an impressive amount of ground thanks to the rise of CBD and CBD-infused chocolates.
Vapes and Oils might outperform Flowers
Of all the new cannabis products that will come to market, concentrates are both the most sure-fire thing and the most fragmented. Between the multitude of forms, from shatter to live resin to wax, each US state has its own market leader, but they have all been extremely attractive to consumers.
The largest US market of California saw concentrates sell more than flowers, with vapes being the most popular. Alongside, cannabis oils have continued to rise in prominence, with more consumers electing for pure THC and especially CBD oils.
Though Deloitte’s report estimated that concentrates would only be the fourth most popular new product, a thorough comparison to the US market puts the product category squarely in-line with edibles for the most popular.
New Edibles and Beauty Products on the Rise
The question for investors and companies alike is which new innovation will be able to stake a claim in the market, and again we can look to the US product landscape for clues. Tinctures and chewing gums have become increasingly popular, and some companies like
Ignite International Brands Ltd. (
CSE:BILZ) have seen potential in THC and CBD inhalers.
A sleeper market already exists, however, in the form of topicals. Lotions, salves, gels, and creams have proven popular as recurring-use products, especially as medical alternatives for pain. And a growing segment exists in beauty and skincare products infused with CBD, which has potentially beneficial properties for skin.
Investors should take care to see what products are trending come December, and which companies are invested in their production. Once the market opens up in the new year, we’ll be able to assess which new products are the most profitable in the Canadian cannabis market.
FULL DISCLOSURE: HEXO Corp., Organigrams Holdings Inc., and Ignite International Brands Ltd. are clients of Stockhouse Publishing.