It’s been a disappointing year overall in Year 1 of full cannabis legalization in Canada.
Sales numbers have been trending strongly in recent months (with the exception of September). But early stumbles by provincial governments hurt the initial roll out.
More seriously, Canada’s largest provinces (by population) have seen the greatest under-performance in provincial government support for the legal industry. Ontario (population 14.5 million), Quebec (population 8.5 million), and British Columbia (population 5.0 million) have badly lagged the rest of the country in cannabis sales.
On Wednesday, Statistics Canada released aggregate sales numbers for Year 1.
Apart from the overall sales numbers, what is most revealing are the per capita figures. Note how the failures by the governments of Ontario, Quebec and B.C. have weighed down the overall numbers.
Total per capita sales in Canada worked out to $24 dollars per person. But look at some of the individual provincial/territorial numbers:
Yukon: $103 per capita
Prince Edward Island: $97 per capita
Nova Scotia: $68
Alberta has been Canada’s clear leader in opening up cannabis stores. With roughly 350 retail locations in the province, it accounts for nearly half of Canada’s total cannabis stores.
Let’s use Alberta as the benchmark: $45 per capita in cannabis sales. Apply that number Canada-wide and we would have seen total Year 1 cannabis sales 71% higher, to $1.55 billion – an extra $644 million in cannabis revenues for Canada’s legal cannabis industry.
In fact, if we take an average of these provincial/territorial sales figures (not weighted by population), we would have seen Year 1 per capita sales of $43 per person, very close to the Alberta number.
What does this mean for Canadian cannabis companies and cannabis investors? If lagging provinces merely raised their sales to the national average – and there was no other growth of any kind in Year 2 – Canada’s legal cannabis industry would grow by 71% in Year 2.
In fact, we already know there will be additional drivers. Cannabis 2.0 is expected to add an additional 3 million consumers. That translates into roughly a 50% increase in the consumer base.
Let’s assume these new consumers purchase products at the Alberta/national average – even though these will be higher priced/higher margin products.
That means increasing the starting figure of $1.55 billion by 50%, to $2.33 billion.
At $2.33 billion in annual sales, this would translate into an increase of in sales by 157% in Year 2. And that would require nothing more than Canada’s under-performing provinces rising to the Year 1 average.
The reality is that Canada’s leading provinces for cannabis distribution will not be standing still. Their per capital sales numbers will continue to rise as new stores are opened and cannabis consumption rates increase.
Of note, the provincial cannabis consumption rate in Alberta rose by 25% in Year 1, stimulated by the wide access to retail cannabis in that province. This trend can be expected to be duplicated nationally as other provinces open up their legal cannabis industries.
A conservative estimate for Canada’s legal cannabis industry in Year 2 of legalization is that sales will rise by 157% to CAD$2.33 billion – without factoring in any growth in per capita consumption from the national average.
This means that the additional growth in per capita sales that we expect to come from Cannabis 2.0 should translate into even more robust sales growth for Canada’s legal cannabis industry.
The cannabis demand is there.
All that is necessary for a steep increase in Canadian cannabis sales in 2020 is for Canada’s largest provinces to be merely average in providing access to legal cannabis for their residents.
As cannabis investors stare at the negative returns from their cannabis stocks for 2019, this should be a source of some Holiday cheer.