Canadian Press
Canada’s soon-to-be-legal cannabis market is poised to generate $6.5 billion in retail sales by 2020 — that’s more that the amount of spirits sold in Canada, and comes close to total wine sales in the country, according to a report by CIBC released earlier this week.“By 2020, the legal market for cannabis in Canada will involve demand for over 800,000 kilograms with a retail value of roughly $6.8 billion — 95 percent of which will for adult use (non-medical),” write CIBC analysts John Zamparo, Prakash Gowd and Mark Petrie.But the bulk of that value — an estimated $3 billion — will go to provinces either in the form of earned profits or revenue from taxation. The federal government has already promised to give provinces and territories a 75 percent share of tax revenues from the sale of legal weed, after the initial proposal of a 50-50 tax revenue split was immediately dismissed by provinces.“Public revenue-generating opportunities like this come along once in a lifetime, and though provinces may claim otherwise, they are the big winners of legalization. We estimate the provinces will capture a stunning 70 percent of industry profits,” said the report.So far, Ontario, Quebec and New Brunswick, Prince Edward Island and Nova Scotia have adopted a public retail model, meaning that private retailers will not be allowed to sell cannabis in any form across those provinces. In provinces like B.C. and Alberta private cannabis stores will be allowed, which could potentially be a revenue opportunity for small business owners.But the CIBC report anticipates that all retailers will have “materially less profit available to them” simply because the provinces might attempt to use their pricing power as large scale buyers of cannabis, to capture a greater share of cannabis profits.“That said, stores are relatively inexpensive to build, licenses are in limited supply, and manageable operating costs still make this an attractive business to be in,” the report said.Another key takeaway from the report is its assessment of the private sector overall. It is estimated that licensed producers and retailers could generate up to $1 billion in earnings as recreational cannabis consumption shifts away from the shadow economy and into the legal market. There are currently 104 licensed producers of cannabis in the country, but only a few — Canopy Growth Corporation, Aurora, Aphria and Medreleaf — have emerged as companies worth billions in market value.On that note, Zamparo, Gowd and Petrie argue that the pace of mergers and acquisitions will continue to be “frenetic”, as producers who are flush with cash look to grab the right pieces to build up their companies into household brands.Estimating future cannabis consumption is tricky, given the dominance of the black market and subsequent lack of data. The only official number out there on how much cannabis Canadians actually consume was released by Stats Canada a few months ago — a whopping 800,000 kg of weed is consumed nationwide, increasing four percent every year over the last decade or so. In fact Stats Can also claims that Canada has one of the highest cannabis consumption rates in the world, with a usage rate of 14 percent.“Canadians consumption of marijuana suggests usage has grown by over five percent per year since the early 1960s, outpacing population growth by nearly 400 basis points,” the CIBC report states.Indeed, the Canadian medical weed industry is already worth hundreds of millions, with over 235,000 registered patients and 10,000 physicians who have at some point prescribed medical weed to their patients. CIBC’s report forecasts that medical weed could be worth $267 million in the next two years, an increase of 42 percent from their 2017 estimate of $188 million.Canada is only the second country in the world, after Uruguay to legalize recreational weed — it is expected to become officially legal approximately 8-12 weeks after the Senate casts its final vote on Bill C-45 on June 7.Follow Vanmala on Twitter
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