Five years have passed since Canada embarked on the journey of legalizing recreational cannabis at the federal level. With this significant milestone approaching on October 17, 2023, it's time to reflect on the transformation and evolution of the country's cannabis retail sector. In this blog post, we'll delve into the key highlights and challenges Canada has faced in its pursuit of a regulated cannabis market and what the future may hold for this burgeoning industry.
The Evolving Cannabis Retail Landscape in Canada
Canada's cannabis retail sector has witnessed substantial growth over the past five years. As projected in our 2021 Canada cannabis retail infographic, the cannabis retail market will reach $6 billion in sales. As of the end of August 2023, there were approximately 3,800 regulated cannabis stores spread unevenly across the country, according to data compiled by MJBizDaily, which matches our estimate from 2 years ago. The number of legal cannabis stores in Canada will likely surpass Tim Hortons stores by 2024, two years earlier than we had predicted in our 3 years of cannabis legalization infographic. This expansion, while impressive, has come with unique challenges and obstacles:
1. Public-Sector Retail Monopolies
One of the significant challenges facing Canadian cannabis retailers is the existence of public-sector retail monopolies, most notably in Quebec. In these jurisdictions, private-sector stores are not allowed, limiting competition and diversity in the market. A recent legislative review of the Cannabis Act highlighted that Quebec has 1.2 stores per 100,000 people while Alberta has 20.4 retail outlets per 100,000, the highest in the country.
2. Provincial Wholesale Monopolies
In most provinces, provincially owned wholesale monopolies dominate the supply chain, imposing product markups that affect both retailers and producers. These entities exert significant influence over pricing, potentially hindering market dynamics. This has led to provincial organizations like the OCS in Ontario making record profits, while many private cannabis retailers have unfortunately closed shop due to significant losses.
3. Municipal Opt-Outs
Many municipalities have chosen to opt out of retail sales, leaving gaps in the legal cannabis availability in certain areas. This can be problematic for consumers seeking legal access to cannabis. For example, Mississauga, Canada’s 6th largest city only recently legalized recreational cannabis, and it remains to be seen how this market will grow.
Cannabis Retail Store Numbers and Locations
At the heart of Canada's cannabis retail sector are the number of stores and their uneven distribution. The latest store tally includes more than 1,700 retail licenses issued in Ontario and nearly 1,000 stores in Alberta, making them the provinces with the most stores. However, not all stores are consistently busy, and some challenges remain:
- Most stores generate around 60% of their revenue on Thursdays, Fridays, and Saturdays, making it challenging to operate continuously throughout the week.
- Canada may be facing an oversaturation of cannabis stores, with some experts suggesting that the national level might not be able to support as many stores as currently exist.
- Stores in many smaller locations are not exceeding CA$2 million in annual sales, making it challenging to maintain tight-margin businesses.
The Bigger Picture in Canada’s 5 Years of Cannabis
While the cannabis retail landscape may face challenges, the larger cannabis industry is continuing to grow. Federal statistics show that total retail sales of legal cannabis are on the rise, reaching $426 million in June 2023. However, this growth doesn't necessarily translate uniformly at the store level, and several factors contribute to this:
- New store openings may be driving month-over-month growth in total cannabis retail sales.
- Sales growth may be distributed unevenly across the retail sector, with certain locations driving more volume and revenue.
Positive Developments for the Canadian Cannabis Industry
Despite the challenges, there have been positive developments in the Canadian cannabis retail sector:
- Some municipalities like Mississauga have changed their stance on permitting legal marijuana stores, allowing for new possibilities and growth.
- Evolving retail regulations, such as farmgate cannabis sales and eased regulatory requirements, have created new opportunities and flexibility for cannabis retailers.
- Commercial consumption lounges and cannabis tourism are emerging as potential growth areas for the industry.
Beyond 5 years of Cannabis Legalization in Canada
As Canada marks five years of cannabis legalization, the landscape continues to evolve. While some contraction in the Canadian cannabis retail sector is expected, opportunities and potential for growth remain. As the country grapples with economic challenges and uncertainties, consolidation is bound to happen, but the cannabis industry remains a beacon of change and innovation.
Canada's journey in the world of legal cannabis has been both transformative and challenging. As the industry progresses into its sixth year, it's crucial to adapt to changing circumstances, navigate regulations, and explore new avenues. With a commitment to overcoming barriers and shaping a brighter future, the Canadian cannabis industry stands as a testament to resilience and innovation.
Cannabis retailers must continuously adapt to remain successful and operational. Cova Software, a Canadian company, offers more than just point-of-sale services; we introduce new technology products and continue to help retailers streamline operations with our ever-expanding cannabis retail tech ecosystem while ensuring compliance with evolving laws and regulations. Click below to get started with Canada's leading cannabis retail technology provider.