California’s cannabis industry has fallen short of expectations — does it hold any lessons for Canada?

Next phase of cannabis in Canada in 2019
WATCH: The next phase of cannabis in Canada in 2019.

It’s been a year since California legalized recreational cannabis, but questions on regulations and licences — as well as a thriving black market — have left the state’s industry floundering.

Experts predicted the large market available could generate lots of revenue, but expectations have fallen short.

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Sales of legal pot in 2018 fell to an estimated US$2.5 billion, down half a billion from the previous year, when there was only a medical industry, the New York Times reported.

“The demand is definitely there,” said Tom Adams of BDS Analytics, which released the sales forecast.

However, he said, strict regulations, heavy taxation and bans on pot shops in many of California’s cities have weakened the industry’s ability to become the alternative to the illicit trade.

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WATCH: Ontario government releases the rules surrounding the cannabis retail lottery system

Ontario government releases the rules surrounding the cannabis retail lottery system
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More than 80 per cent of cities have banned pot shops and only 547 stores have been granted licences (either permanent or temporary) when there are 6,000 available, The Los Angeles Times reported.

Some of the concerns California is facing are mirrored — albeit to a lesser extent —here in Canada, which legalized cannabis on Oct. 17, 2018.

An Ipsos poll conducted a month after legalization found that one-third of Canadian marijuana smokers still used the black market.

READ MORE: Legal marijuana had an exceptional year in 2018 — and not just in Canada

Licencing of pot shops has also been slow. Several provinces have government-run online retailers, whose main concern was keeping the virtual shelves stocked.

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Adams said typically, both producers and governments underestimate demand in the beginning.

“No one can believe how much people like cannabis,” he said with a chuckle.

WATCH: Alberta businesses say cannabis sales are encouraging

Alberta businesses say cannabis sales are encouraging
Alberta businesses say cannabis sales are encouraging

Allan Rewak, executive director of the Cannabis Council of Canada, said that growing pains on the supply side are being addressed, but not overnight.

“We still have a few road bumps we’re overcoming and those just relate to the creation of an entirely new, highly regulated supply chain for adult consumer-use cannabis,” he said.

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He said that while California is a different market than Canada, with its own regulations and conditions, the example shows Canada is on the right track.

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“The Canadian system is tightly controlled, highly regulated and requires seed-to-sale tracking,” he said. “I think our system is the best in the world and it prevents the overcapacity that we see in California where there are a little bit looser rules in terms of micro bacterial testing and production controls.”

READ MORE: Cannabis supply slowly improving but not enough to allow more licences: AGLC

Late last month, Statistics Canada revealed that Canadians bought $43 million of marijuana products in the two weeks following legalization. The agency has yet to publish additional sales data, but Rewak said there are indications that products are selling “remarkably well.”

“I think that we will see a very different end result than California,” he said.

Adams said that Canada is doing two things right in order to divert sales from the illegal market — setting the minimum age at 18 (though most provinces have opted for 19) and allowing online sales and postal delivery.

“To be able to deliver it through the mail is a huge difference,” he said.

READ MORE: Canadians spent $43M on cannabis in first two weeks after legalization: StatCan

He described the California market as confusing and messy, and he suggested that the sales forecast figures don’t tell the whole story of what happened.

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Prior to recreational legalization, California’s US$3-billion medical market was very loosely regulated, and with legalization came a much stricter regime, he said. After additional rules kicked in part way through the year, the market really never recovered.

“A big asterisk needs to go next every headline on what’s going on in California,” he said.