One year ago today, Canada became the world's largest country to legalize adult-use cannabis sales. During this first year of regulation, legal weed stores made C$1.1 billion in sales, according to a new report by pot analysis firm Cannabis Benchmarks. The report estimates that this sales figure represents 105,000 kilograms of weed (nearly 116 tons), which is actually only a tenth of the 924,000 kg (1019 tons) of dried flower that Canadians consume every year.
As impressive as 1 billion dollars looks on paper, this revenue figure falls far short of what analysts actually expected the first year of sales to bring. From the onset, the country's legal retail market has been plagued with serious supply shortages, due in part to the slow rollout of retail stores and business licenses.
“When the government was setting up the legal framework for cannabis, I don’t think they realized how many roadblocks would be set up in front of them,” said Het Shah, managing director of New Leaf Data Services (parent company of Cannabis Benchmarks) to Bloomberg. “They likely thought the online sales would be robust enough to keep the black market away. That hasn’t happened yet.”
Legal retailers have ramped up their production efforts enough to meet the demand for legal pot, but taxes and costs of compliance have pushed the cost of legal weed to an average of $10.23 per gram, almost double the average cost of black market weed, at $5.59 per gram. These high costs have convinced as much as 85 percent of the country's weed shoppers to continue to buy their pot on the black market.
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“If you’re an experienced user, you probably have your suppliers already. It’s probably hard to switch away from them because prices [in the black market] are 30 to 35 per cent lower,” Shah explained to Bloomberg.
Canada's adult-use law gave each province the authority to draft its own retail regulations, and some of these provinces have been far more successful than others. In Ontario, the government has only opened 24 pot retail shops to serve its 14 million residents.
“Ontario could support a thousand stores — and that’s a conservative estimate,” said cannabis analyst Chris Damas to Leafly. “The provincial government blew it. If Ontario was punching at the weight it should be, Canadian sales numbers would be much higher.”
Quebec faces a similar dearth of legal weed stores, with only 22 stores serving a population of eight million. In contrast, there are over 300 legal weed stores in Alberta — a province with only 4.3 million residents. Unlike Ontario and Quebec, Alberta's government allowed private businesses to sell weed, allowing the total number of stores to be driven by market demand. In the first eight months of sales, Alberta sold $124 million worth of pot, while Ontario only sold $121 million.
Most provinces' government-operated pot retailers are reporting a net loss for their first year of sales. Ontario is expecting to report a loss of $25 million, Quebec a loss of $4.9 million, and Manitoba lost $2.4 million.
Despite these pitfalls, analysts are expecting Canada's pot industry to become increasingly profitable as time rolls on. Starting today, cannabis edibles, topicals, and vapes are now technically legal. That said, these products are not expected to hit the market until December at the earliest.
This July, Canadian weed retailers moved over $100 million worth of legal weed, breaking the country's sales records for the fifth month in a row. Sales are expected to continue to grow once the legal industry finally figures out how to successfully compete with the black market.