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Canada Update, Part 1: After An Uneven Rollout, Sales Are On The Rise

July 30, 2019

With Canada’s recent unveiling of regulations governing edible, extract, and topical cannabis products—which will begin reaching store shelves just before Christmas—the country’s cannabis market is at a turning point. While the rollout of recreational cannabis in Canada has been marked by growing pains, producers, distributors, and retailers appear bullish that the launch of ingestible forms of cannabis will markedly accelerate growth.

Following the debut of recreational sales of cannabis flower and oil last September, total Canadian sales hit C$57.3 million ($44m) in December of last year before slumping in February to a low of C$51.6 million ($39m), according to the official numbers from Statistics Canada. But monthly sales rebounded to C$60.9 million ($46m) in March and have grown month-over-month since, reaching C$85.6 ($65m) million in May, the last month for which data is currently available. The Canadian government earned C$186 million ($141m) in cannabis taxes between legalization in mid-October and the end of March.

Wayne Chaplin, CEO of Southern Glazer’s Wine & Spirits, recently told SND, “It’s been a little bit slower than we imagined mainly due to supply constraints and the number of retail locations that the provinces opened up initially. But there’s no question that there is demand, and we expect demand to increase at an even more rapid pace once edibles and drinkables are legalized.” Southern Glazer’s Canadian cannabis unit Great North Distributors has an exclusive partnership with Aphria, and in recent days has added “craft” cannabis supplier Pasha Brands to its portfolio.

While the industry now appears to be on an upward trajectory, the rollout of recreational sales has varied substantially from province to province and suffered from supply problems. In March, for instance, Ontario, which has a population of approximately 13.5 million, sold C$7.7 million ($5.8m) worth of cannabis, while Alberta, at less than one-third Ontario’s population, had sales of C$14.5 million ($11m).

The disparity was due to Ontario’s delay in issuing retail licenses, the first 25 of which were chosen by lottery in January. The stores were allowed to open April 1 and sales figures reflect the difference, with Ontario leapfrogging Alberta to reach C$19.7 million ($15m) in April. But Ontario still only has 22 stores in the whole province, almost all of which are in the greater Toronto area, whereas Alberta has over 170. Ontario recently announced plans to issue another 50 licenses by year-end.

Some provinces have toyed with alternative business models. Nova Scotia, for instance, has embedded cannabis retail within eleven province-run Nova Scotia Liquor Corp (NSLC) locations, in addition to one stand-alone NSLC cannabis outlet and limited private retailers.

British Columbia’s retail scene has begun to catch up to its peers and now has 40 licensed dispensaries in addition to the province-run B.C. Cannabis Store that provides online sales and deliveries province-wide. The British Columbia Liquor Distribution Branch—which runs B.C. Cannabis Store—told SND that CBD oil has been particularly popular with their customers.

“CBD products, especially oils and capsules, tend to sell out quickly after new shipments are received,” an LDB representative noted. Seasonality appears to play a role in consumer preference as well. The store has observed increased sales of pre-rolled joints since the beginning of spring, which it attributes to “warmer weather and customers’ increased desire to be outside.” Still, the LDB pointed to supply shortages as continuing to be a major problem.

The supply squeeze is expected to ease as producers finish scaling up their growing capacity—doing so will be only more crucial as the launch of edibles and drinkables draws closer. As former Canopy Growth CEO Bruce Linton recently told SND, “These are table stakes. The branded products begin in Q4, when you have differentiated beverages, vapes, and edibles. Right now, we’re branding the equivalent of white sugar. You can get a lot of loyalty for your brand of white sugar, but we’re still in the early stages; it’s not yet the finished cake.”—Danny Sullivan

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