Legalization Canada: Happy 1st Anniversary!

Today marks the first anniversary of Canada’s adult-use cannabis legalization – the passage of Bill C-45. It’s an appropriate time to review what happened last year and consider what’s coming next.

Legalization brought big changes for some folks. Close to 10,000 employees now work at licensed cannabis producers, with thousands more at retail stores.

Unfortunately, cannabis company profits across the board remain scarce and tax revenues are still modest.

By contrast, cannabis users have remained largely unchanged. In the nine months before legalization, an average of 14.9 percent of Canadians reported using cannabis. That increased by only one-tenth, to 16.3 percent, in the nine months after. However, those users have increasingly bought their cannabis in the legal market.


Steady Sales Growth

Health Canada data has shown July’s legal recreational and medical sales totalled over 11,000 kilograms of dry cannabis and nearly 10,000 litres of cannabis oil. That’s the fifth consecutive month of expanding sales.

Supposing the growth trend continued into August and September, legal products might now constitute 30 percent of Canada’s estimated consumption. Legal home growers likely supply even a few percentage points more.

This is a marked improvement from September 2018, when legal sales represented only eight percent of gross national demand. Yet, still today, illegal suppliers control most of the market.


Producers and Retailers Expanding

The limited sales success was largely due to ongoing shortages of dry cannabis products throughout fall and winter. But supplies began improving in spring.

Alongside improving supplies came expanding retail networks. Canada had just over 100 licensed stores in October 2018, but now has more than 550.

Some of those have succeeded in a big way. Québec’s government-owned outlets each averaged $940,000 in monthly sales over the summer. Ontario’s private retailers likely did too.

But the high sales per store were mainly due to having few retail outlets per province. The store scarcity meant legal cannabis captured merely a fraction of each province’s potential market in the first year of legal sales.

By contrast, Alberta and New Brunswick have far more retailers per capita, letting legal pot shops seize bigger market shares. But New Brunswick’s outlets averaged just $150,000 each in monthly sales, while Alberta’s shops did only slightly better.

So, low store density is good for retailer profitability but not for public policy.

From the latter perspective, Alberta’s retailing approach appears inspired. It had 65 stores open in November, more than any other province. It now has 301, more than all other provinces combined.

But the future looks more than friendly.

In an exclusive podcast with Stockhouse in August, Bruce Linton – Founder and former co-CEO of Canopy Growth Corp., looked ahead to an exiting future where the boundaries to growth in the sector were virtually limitless – cannabis beverages, CBD therapy for pets and livestock, and other health and wellness products.

For investors in the Canadian and soon-to-be global cannabis space, the next year will inevitably demonstrate that 2019 was only scratching the surface in what new, exciting and profitable opportunities will unfold in this still nascent industry.