After a boom in the cannabis industry following legalization in 2018, experts are predicting a rough patch for the sector in the coming years.

Alberta has 611 cannabis stores, more than any other province in the country.

“There’s clearly a demand for cannabis,” said Trevor Fencott, the CEO of Fire & Flower, one of the largest cannabis retailers in Canada.

“We have a vibrant retail industry in Canada, we have a vibrant ancillary services industry in Canada for legal, accounting, all that other stuff that we built in there, that’s important.”

In the two-and-a-half years since legalization, the marijuana market has had some struggles. The initial hype was followed by a high demand that producers and sellers initially couldn’t keep up with.

Now, Canada is overproducing cannabis, though it isn’t necessarily a bad thing, according to Fencott.

“The oversupply of cannabis should allow us to compete with the illegal market,” said Fencott.

Kyle Murray, the vice dean at the University of Alberta School of Business, said the industry is following the familiar pattern of most new industries.

“New industry, a lot of excitement, probably some overinvestment, overhype, expectations are elevated beyond reality,” said Murray. “Now we’re going through a bit of a pullback, companies are becoming more reasonable in their expectations.

“There’ll be a bit more consolidation, a few more players fall out of the market and then eventually we’ll settle into a stable market.”

Murray predicts Alberta will most likely end up with somewhere between 400 to 600 cannabis stores in the next five to 10 years.

“Early on there was a lot of talk about once cannabis was legal a whole bunch of new buyers and users would get into the market, people would switch from alcohol to cannabis… we really haven’t seen that at all,” said Murray. “If the market does expand we’re likely to see that higher number near 600, maybe 700.”

That is the number Alberta sits at now, though 22 stores have closed since legalization. Murray believed the demand still needs to grow in order to sustain the number of stores open now.

Within the next decade, Murray expects the cannabis market to mainly have a few large, dominant sellers.

“It’s very Darwinian, the survival of the fittest,” said Murray. “But you’ll always see a handful of successful independents who are doing a good job with their own business.”

For cannabis producers, Murray doesn’t expect the market to settle as quickly.

“We’re just beginning to get globalized in this business and competition is going to increase… I think we’ll see a lot of volatility going forward on the producers’ side for quite some time.”

He added he believes the Alberta government was able to make a good, competitive market for retailers.

“That allows the market to decide winners and losers, it allows the market to push for innovation and new product development and customers relationships that are stronger because those businesses are trying to survive and out-compete each other,” said Murray.

“Long term, I think Ontario is likely to expand and that is going to be the biggest market, but Alberta’s going to be a strong market and from a business perspective it’s good for Alberta.”

Fencott believes the eventual shakedown of the market will not be because of lack of demand for cannabis.

“There’s going to be attrition, because the government is competing with mom and pop retailers, it’s not that the industry can’t support that number of stores,” said Fencott. “Government regulation is absolutely necessary… but to have the government in the business, competing with retailers, that just makes no sense.”

Saskatchewan is the only province without government competition in the cannabis market, according to Fencott. It’s a model he believes should be more prevalent.

In Alberta, private retailers are not allowed to sell cannabis online, only the government is allowed to do that.

“So the retailers don’t have access to a normal retail tool… tell me any other industry where we can go in and I can’t find the red GAP sweater that I wanted so I have to order from the government,” said Fencott.

The AGLC generates $100 million annually from online cannabis sales, but isn’t expected to turn a profit from it for the next three years.

Another worry for cannabis producers in Canada is the impending, expected, legalization of cannabis in Mexico.

If passed, Murray said producers in Canada could suffer due to cheaper labour costs in Mexico.

States in the U.S. are also slowly starting to legalize cannabis, which could help Canadian producers and retailers looking to expand.

“The other side of that, as the U.S. starts to legalize, there’s going to be all kinds of competition in the U.S., in Mexico and probably, soon, elsewhere in the world.”

According to Fencott, Fire & Flower is already underway with expansion plans into the U.S.