Retail served as the main driver of a 118 per cent increase in Canada’s recreational cannabis market last year, with the much-anticipated rollout of stores in Ontario quickening its pace and Alberta witnessing steady growth.

“The opening of retail outlets drove growth in 2020,” notes a new report on Canada’s recreational weed market from Brightfield Group, a consumer insights and market intelligence firm for the CBD and cannabis industries.

In February, the Alcohol and Gaming Commission of Ontario (AGCO) reported that it was issuing 30 cannabis retail store authorizations (RSAs) weekly, up from 20 a few months earlier. As of mid-month, AGCO reported it had received more than 1,630 RSA applications and had issued 489 RSAs, with 430 authorized cannabis retail stores open in the province in the province.

Ontario led the retail charge, but still has plenty of space for more stores, the Brightfield Group report suggests. “There’s still massive potential for more retail outlets before the province hits saturation with its large population.”

Cannabis sales in Alberta — the original weed retail frontrunner — also grew significantly thanks to eschewing limits on the number of private retail stores.

Cannabis sales in the province “quickly boomed without a cap on licensing. We expect other large provinces to follow suit as retail continues to expand.”

More specifically, a chart in the report shows that Alberta had 493 retail outlets in early 2020 compared to 574 in early 2021, while Ontario had 145 compared to 444, Quebec had 43 compared to 61 and B.C. had 233 compared to 339.

Overall, the size of the Canadian cannabis market — meaning recreational and medicinal — was about $2.6 billion in 2020 and is expected to grow over the next few years, notes the report.

Projections are that the market value will hit about $4.2 billion in 2021, $5.9 billion in 2022, $6.8 billion in 2023, $7.4 billion in 2024, $7.9 billion in 2025 and about $8.7 billion in 2026.

The lion’s share of the market throughout the projection period is from recreational cannabis, accounting for almost $8.2 billion of the total in 2026 compared to about $499 million for medicinal. On the recreational front, “growth will taper off to a large extent by 2024 as the market reaches capacity.”

But retail will likely be a big part of the upward trajectory of growth. Brightfield Group already sees budding partnerships between Canadian and U.S. cannabis brands, with licensed producers (LPs) “bringing American products to the Canadian market. This emphasizes the Canadian market’s push for consistent, quality products with proven value as opposed to just name recognition.”

The lion’s share of the market throughout the projection period is from recreational cannabis. / PHOTO BY AP PHOTO/ELAINE THOMPSON

As examples, the report cites Indiva teaming up with Bhang, Wana, Kin Slips, and Ruby Sugar to produce edibles; 48North producing Apothecanna topicals; Dosecann creating dosist vape products and Pax partnering with multiple LPs to provide its pod technology and create co-marketing opportunities.

“This method is an easy way for Canadian companies to avoid the often costly and lengthy process of targeted brand development by utilizing existing and successful models,” notes the report. “For American companies, this sort of licensing deal allows them to expand into a sizeable international market without having to set-up any sort of operations in the country, providing them with an additional revenue stream,” it adds.

But wider product variety on the retail front may not be the only factors coming into play. Brightfield Group suggests that the rise of value brands and being able to buy in bulk could also be a driver for growth.

“Cheap bud is also categorized as a 1.0 product, benefiting from a supply surplus and universal customer access in the country, making it cheap and quick to produce and distribute,” states the report. Some brands have embraced the low-cost label, including HEXO’s Original Stash, Tilray’s The Batch, Aurora’s Daily Special, Zenabis’ Re-Up, Aphria’s B!NGO, and Organigram’s SHRED.

FILE: Guests gathered around 48North’s booth. / PHOTO BY CAFA

Citing Canadian figures, Brightfield Group notes the price of legal recreational weed fell 10 per cent from the third quarter of 2019 — a year into legalization — compared to the same quarter of 2020. “As a result, the adult-use markets and value brands in particular are better-positioned to compete with the illicit market.”

Indeed, the report cites an earlier consumer insights review by the company that showed “friend” was the top purchase location in the first quarter of 2020, but that had shifted to “private retail/dispensary” by year’s end.

With regard to product preferences, Brightfield Group expects that the market will remain overwhelmingly THC-dominant, especially in categories such as flower, which appeal primarily to regular users. That, however, will start to shift towards other THC:CBD ratios as consumer education increases.

“While Canada has experienced growing pains with the opening of its adult-use market and will likely continue to do so in the near term, longer-term prospects look positive as the provinces — particularly Ontario — begin to loosen regulations and broaden access to consumers,” the report states.

Brightfield Group expects that the market will remain overwhelmingly THC-dominant, especially in categories such as flower, which appeal primarily to regular users. / PHOTO BY MJ_PROTOTYPE / ISTOCK / GETTY IMAGES PLUS

“The incremental expansion of product categories allowed on the market (cannabis 2.0) has had the most impact on the market, causing incremental growth,” Brightfield Group notes. “Now that virtually all cannabis products are permitted for formal sale at the federal level — both in medical and adult-use channels — the path has been paved for scaled growth and the development of a legal market that can more effectively compete with the black market.”

In general, market growth will also be advanced by expanding and diversifying reasonably priced, quality product, as well as the “evolution of a more market-friendly regulatory environment,” which the report suggests is likely.

“This will entail the revisiting (lowering) of tax rates, permitting for more efficient and broader licensing and less provincial ‘middle-men in the supply chain, and the loosening of marketing and advertising restrictions as well as many province-level policies (such as those banning vapes),” the report adds.