EDITOR’S NOTE: All references to currency in Arcview’s report refer to U.S. dollars.
A new report estimates that in five years, Ontario, Alberta, British Columbia and Quebec will make up nearly 85 per cent of Canada’s legal cannabis market.
The report — called Canada Leads the Way on Global Cannabis Legalization — was released Tuesday by private U.S. research company Arcview Market Research and BDS Analytics. It’s the first-ever province-by-province forecast of growth in the Canadian cannabis market.
Research found that across Canada, consumer cannabis spending is forecast to grow 44.4 per cent between 2018 and 2024, rising from $569 million to $5.2 billion.
Of that $5.2 billion, nearly $4 billion is expected to come from those four provinces alone.
The report found that Ontario, the country’s most populous province, will account for about 39 per cent of that spending growth. The researchers also found people in Ontario are more often accepting of cannabis use and report consuming cannabis at a higher rate than the national average.
“Ontario’s existing retail market, mainly in Toronto, is dominated by unlicensed brick-and-mortar stores that, while illegal under Canadian law, have been allowed to operate largely unfettered by local authorities,” the report reads.
Alberta is only the fourth-largest province in terms of population but is predicted to be second to Ontario in cannabis market growth, the report says.
The western Prairie province will add $725 million — about 16 per cent — of the new legal cannabis spending in Canada between 2018 and 2024.
“While the province boasts a slightly higher usage rate than the nation as a whole, the main driver of this growth is the fact that Alberta seems to have the most free-market-oriented regulatory regime in the nation,” the report says.
“Alberta is kind of the perfect situation in every sense,” report author Tom Adams told Global News.
“A lot of people got cards to participate in the legal market because they’re fans of cannabis but want to do it legally, and (Alberta has) all the kind of free-market rules in place to allow it to happen in a competitive, low-price and, therefore, likely to be very popular way, and less competition from the illegal market.”
The report states: “While Alberta has just 12 per cent of Canada’s population, it was among the provinces best ready for the Oct. 17, 2018 launch of adult-use sales. As a result, the province’s 2018 sales were 38 per cent of national sales.
“Alberta’s comparatively liberal regulatory regime suggests it will rank among the fastest-growing provincial cannabis markets.”
Canada’s cannabis market compared to the United States’
Adams said the team revised its estimates for legal cannabis spending across provinces after adding newly released data from Statistics Canada and Health Canada to previous consumer studies. While BDS Analytics’ forecast is still positive, it’s slightly more conservative than in the past for a few reasons.
The date of legalization was pushed back from July to October 2018, limiting spending on legal cannabis to just two and a half months. Product shortages in most provinces “were, and continue to be, a major hold-back on market growth,” and “provincial-level regulations that have created vast gaps in business-friendliness across the provinces” also impacted the forecasts.
One positive factor is that the legal age for buying legal weed in Canada is either 18 or 19. In U.S. states where pot is legal, consumers must be over 21.
“Canada’s government has been crystal clear about the whole point of (legalization) being to eliminate the illicit market,” Adams said.
“Because it’s a federal-level move, it has a shot of doing that. The U.S. states can labour mightily, but they’re not going to succeed because they’ve all adopted the drinking age: 21.”
However, while the legal age difference might bolster the market in Canada, the regulated retail market will not.
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“One of the clear lessons from the U.S. states that have gone legal so far — Colorado, Washington, Oregon, California, Nevada, Alaska and Massachusetts — is that the more you allow the free market to just operate as a free market, the quicker it will grow, the faster the tax revenue is going to grow, the faster the illicit market will be destroyed,” Adams said.
“On that front, Canada’s regime is, shall we say, more restricted and more government control than really any U.S. state so far.”
Growth in Canada is also expected to be slower than in Colorado, Washington and Oregon because concentrates and edibles aren’t legal yet.
“Those categories have been the key drivers of market growth in legal U.S. states,” the report says.
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Adams says his team, as well as many in the industry, will be watching the outcomes of different regulatory models in various regions closely.
“We call those states ‘laboratories of legalization’ and now we have 10 more of them with the provinces,” he said.
“Everybody took a somewhat different approach and now we have almost 20 different laboratories… so everybody can learn from each other. Whether they will — whether their goals can be aligned around high taxes, robust markets, elimination of the illicit market — is still a question.”
Crunching the numbers
Forecasts were compiled using data from BDS Analytics’ retail tracking in six U.S. states, consumer insights studies across the U.S. and Canada and data from Statistics Canada and Health Canada.
“We’ve actually developed a pretty careful rating system for markets factoring in issues like supply-chain regulation and consumption-limit regulation and number of stores, today and likely in the future, and extra-legal market strength — six factors that we rank each market on and that drives our thinking about what the growth could be,” Adams said.