Described by several big “social experimentation”, the legalization by the Canadian government of the cannabis for non-medical purposes has been talked about a lot. Four years after the law came into effect, we take a look at the economical impact of this whole nascent industry by examining the profile of cannabis consumers. Incidentally, we note that the anticipated calamities have not manifested themselves and that there is still a long way to go to achieve certain objectives of the legalization.
The election campaign of the 2015 federal elections had this peculiarity that it included a new issue: the legalization of the cannabis for non-medical purposes. Then at the victory of the liberal party which had made an election promise about it, the Canadian Parliament adopted the cannabis law in June 2018, thus making Canada the second country in the world to legalize this product for non-medical purposes (Canada had already legalized the consumption for medical purposes in 2001). The law came into effect in October 2018.
Cannabis sales: authorized source vs. unauthorized source
It is important to distinguish between licit and illicit markets when considering the cannabis industry. In fact, one of the declared objectives of the cannabis law consisting of
eliminating the illegal sale (or, to use the terminology of the Canadian government, the sale by “an unauthorized source”), the legalization had an effect of launching a whole new economy sector devoted to the production, sale, and distribution of the cannabis for non-medical purposes. The economical theory stating that the consumers are definitely going to prefer a legal product of good quality over an illegal product whose composition might be doubtful sometimes (the alcohol remains the most well-known example for this approach), there was a hope from the Canadian government that the legalization of the cannabis would put an end to the illegal trade (which is difficult to tax, let’s keep that in mind). This is yet to be achieved, and more than one third (35%) of the buyers were still supplied by illegal sources in 2020. Even if this number represents a decrease of 16% compared to the previous situation before the law came into effect, we are still far from the total elimination of the illegal sources. On the contrary, the number of Canadians who used to get the cannabis through a legal way increased during the same period from 23% to 68% (noting however that only cannabis sales for medical purposes were authorized before the law comes into effect). The number of the users who made their own cultivation also increased before and after the legalization, going from 8% to 14%. In summary, several consumers continued to get the cannabis from legal and illegal sources, which can be described as “a hybrid consumption mode”.
How to explain the ongoing prosperity of the unauthorized sources? Here again, it is the good old economic rules that prevail: according to a recent study from the firm Deloitte (2), the cannabis consumers turn into the illicit trade mainly for price reasons (the cannabis provided by unauthorized sources is sold, on average, between 8% and 10% cheaper than the legitimate cannabis). Other arguments in favor of the unauthorized sources are that it is more practical or easier to deal with clandestine sellers (according to 37% of the buyers), these sellers provide a product of a better quality (32%), they are more reliable (32%), or they provide a better range of products (21%).
A Growing Industry
The surprising robustness of the unauthorized sources does not indicate to what extent the licit market is in a bad shape: apart from this, the industry generated revenues of 378 million dollars in June 2022 (3) for the whole country, that is an increase of 23% compared to the sales of June 2021. In total, the authorized sources achieved sales a bit higher than 4.5 billion dollars during the period from June 2021 to June 2022.
In absolute terms, as expected due to its demographic weight, Ontario shows the highest sales for the period from June 2021 to June 2022 (1.75 billion dollars), followed by Alberta (which is a surprise!) with sales of 803 million dollars for this same period. What about British Columbia? The province came in the third rank (just before Quebec, which is another surprise) with cannabis sales of 650 million dollars for the year ending in June 2022.
An important factor (which probably explains in part some of the gaps between the total sales and the demographic weight) is the diversity of the regulatory framework surrounding the selling and the distribution of cannabis in different provinces and territories. In fact, it is easier to obtain cannabis in certain provinces or territories (see the frame below), which seems to have an impact on the sales. Or else, it could be that we really count more cannabis consumer in certain provinces than others. Regarding this point, Statistics Canada published data a little after the cannabis legalization which showed that the residents of Yukon spent on average $103 per person to buy cannabis compared to only $10 per person for British Columbia during the studied period, with a national average of $24 per person (4).
The distribution definitely seems to play a role, as the total cannabis sales follow the number of the authorized cannabis stores, which increased from 182 for the whole country in 2018 to 1445 in 2020, that is an increase of 600%!
Are the Canadians addicts?
Did the legalization have an effect of profound transformation of the consummation habits of the Canadians? Will we become, one day or another, addicts?
The answer is rather reassuring: the percentage of the Canadians who say they consumed cannabis certainly increased by 6% between the pre-legalization period and the period of the most recent Statistics Canada survey (which dates from the fourth quarter of 2020) (5), but it is only 20% of the Canadians who confirm having consumed during the quarter in question. It is still far from the majority.
Moreover, this same survey shows that the legalization does not seem to have changed the consumption habits in several provinces (the percentage of the population having consumed stayed the same before and after the legalization in Alberta, Saskatchewan, Ontario, Quebec New Brunswick, Nova Scotia, and Newfoundland and Labrador), which tends to confirm that because a product is prohibited does not make its demand increase when it suddenly becomes available.
Other interesting data on the topic of the consumers that came out of the study made by the firm Deloitte (2) is the importance of the “existing consumers”, who are basically the regular buyers (as opposed to the new buyers, who had not bought cannabis before the law came into action, and to the casual buyers). These regular buyers represent 58% of the cannabis consumers, but they are responsible for more than 75% of the purchases (which indicates that the part of the market made of the other buyers, new or casual, is only 25%). From a commercial strategy perspective, the study of Deloitte ends by saying that it is preferable to “fish where there is fish”.
Besides the data relevant to the province or the territory of residence, some data started also to emerge in what is related to the socio-demographic characteristics of the cannabis consumers. So, Statistics Canada reported that 18.4% of the men declared having consumed cannabis during the fourth quarter of 2019 (compared to 15.1% of women) (6). How old are the consumers? They are mostly young as 26.9% of the youth in the range from 25 to 34 years confirm having consumed cannabis during the fourth quarter of 2019. The youth from 15 to 24 years come in the second rank with a consumption percentage of 24.0%, as these percentages continue to decrease with age to reach 6.1% for the people whose age is 65 or older.
New customers, new products
In addition to attracting new consumers (even if they are far from representing the majority of the buyers), the legalization has also stimulated a bigger diversity in the ways of consuming the cannabis. So, even if the cannabis is still mainly consumed under the form of smoking by the regular buyers (56% declared ingesting it mainly this way), it is increasingly also being consumed under the form of edible products (52%), oils (36%), capsules (17%) or drinks (12%) (2).
The new consumers also have an appetite for the variety, but unlike the regular consumers, they prefer a lot the edible products (40%) and oils (38%) over dried flower that can be smoked (11%). The famous cough of the regular consumers seems to deter the new consumers.
What is next…
It seems that the fears related to the explosion of the number of consumers were unjustified as everything leads to believe that the percentage of the Canadian population that is going to consume cannabis will stabilize at around 20% (more or less similar to before the legalization). In the same vein, one of the main objectives of the law, which is to enable the elimination of the illicit market, has not been achieved yet, despite a decrease in the sales from illegal sources.
To be continued…
Since the cannabis law was put into effect, the provinces and the territories have been responsible for determining the way with which the cannabis for nonmedical purposes is distributed and sold in the territory. Each provincial or territorial government chose between a model managed by the government (public model), a model managed by the private sector (private model) and a hybrid model, which combines the public sector and the private sector, for managing the sales and distribution of cannabis. The list below presents the model chosen according to each provincial or territorial government as the used mode of distribution, both in-store and online.
Model of cannabis sales by retail and modes of distribution in the provinces and territories
- Newfoundland and Labrador: Hybrid model: public (online sales only) and private (in-store sales only)
- Prince Edward Island: Public model (in-store and online sales)
- New Scotland: Public model (in-store and online sales)
- New Brunswick: Public model (in-store and online sales)
- Quebec: Public model (in-store and online sales)
- Ontario: Hybrid model: public (online sales only) and private (in-store sales only)
- Manitoba: Private model (in-store and online sales)
- Saskatchewan: Private model (in-store and online sales)
- Alberta: Hybrid model: public (online sales only) and private (in-store sales only)
- British Columbia: Hybrid model: public (in-store and online sales) and private (in-store sales only)
- Yukon: Hybrid model: public (in-store and online sales) and private (in-store sales only)
- Northwestern Territories: Public model (in-store and online sales)
- Nunavut: Nunavut is the only territory that does not include any physical store for selling by retail
Published by the Société de développement économique de la Colombie-Britannique, the series of topics “deciphered economy”, which is intended to connect several statistical data related to the economy of British Columbia in order to better prepare its customers so that they can understand the present and future challenges.
Notes :
- For short stories fans: Uruguay had already legalized the cannabis for nonmedical purposes in 2013.
- https://www2.deloitte.com/ca/fr/pages/consumer-business/articles/listening-to-canadas-cannabis-consumer.html
- https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=2010000801&pickMembers%5B0%5D=2.30&pickMembers%5B1%5D=3.1&cubeTimeFrame.startMonth=06&cubeTimeFrame.startYear=2021&cubeTimeFrame.endMonth=06&cubeTimeFrame.endYear=2022&referencePeriods=20210601%2C20220601
- https://www150.statcan.gc.ca/n1/pub/11-621-m/11-621-m2019005-fra.htm
- https://www150.statcan.gc.ca/n1/pub/11-627-m/11-627-m2021043-fra.htm
- https://www150.statcan.gc.ca/n1/pub/13-610-x/cannabis-fra.htm
