Canada’s legal recreational cannabis market surpasses illicit spending for first time

Bethan Rose Jenkins, Cannabis News Writer/Editorial

Sales accrued through Canada’s recreational cannabis market have overtaken the illegal segment, according to Statistics Canada. The government agency claims that the legal adult-use sector surpassed illicit transactions for the very first time during the third quarter of 2020.

Experts believe that this milestone achievement indicates the positive impact legalization has had during its nascent stages. Some factors that have contributed to the success of Canada’s legal cannabis market include sinking prices, broader retail options and ever-evolving inventories.

Based on Statistics Canada’s research, consumer expenditure on non-medical cannabis products totaled 824 million Canadian dollars (USD $644 million) by the third quarter of 2020. Comparatively, unlicensed non-medical cannabis sales totaled an estimated CAD $754 million (USD $598 million) during the same time period.

These numbers are inspiring and indicate that there is plenty of growth in the foreseeable future, says the Chief Executive Officer (CEO) of Cannabis Council of Canada, George Smitherman. His industry group is acknowledged as the national organization of licensed producers of Cannabis under Health Canada’s Cannabis Act.

“It illustrates the success of one of the policy goals, which is bringing cannabis sales into the legal framework,” explained Smitherman, who also noted that the existing regulations surrounding cannabis promotion and taxing must be tweaked in order to help the legal market consistently contend with the illegal market.

Illicit market generated CAD $1.3 billion before cannabis in Canada was legalized

Canada’s underground cannabis market appears to be quietening down. Statistics Canada’s research suggests that spending on illegal adult-use cannabis nosedived directly after Canada legalized the plant in October 2018.

During the third quarter of the year, illegal operators recorded an estimated CA$1.3 billion (USD$1 billion) in sales. Since Q3 2018 presented illegal sellers with their final chance to swerve legal competitors, it’s not surprising that the black market managed to harvest such a healthy amount of money.

Smitherman feels that reduced prices in the newly-legal market have helped to sustain its success.

“It’s really important to point out that price decreases on key verticals of dry flower have been essential for transitioning many of those consumers,” Smitherman said. “That price reduction has been done entirely by licensed producers. That’s been achieved entirely on the back of licensed producers.

In the future, Smitherman feels confident that Canada’s legal cannabis market can continuously reap the rewards, so long as federal excise taxes are properly applied throughout the production chain. An MJBiz Daily report published in June 2020 confirmed that Canada’s cannabis excise taxes amounted to CAD$32 million (USD$23.7 million) from April 2019 through March 2020.

“Imagine the progress we could make if the government could look at the way that their policies might be barriers to making further progress in the elimination of the illicit sector,” he said. “To continue that option for consumers, we need to grow the options for consumers more retail stores as an example, but we also need to be mindful of the end product price. That’s a big piece of work we’re doing with the national government to let them know about some of the constraints the current policy is causing.”

Medical cannabis spending in Canada 

Let’s forget about the adult-use segment of Canada’s cannabis market for a second and instead, let’s scrape the surface of what’s been happening in the country’s medical market. Analysts from Statistics Canada also researched data recorded in this avenue between the third quarter of 2018 and Q3 2020.

What they found was that medical cannabis sales which amounted to CAD $146 million (USD $116 million) in Q3 2020 rose almost 10 percent during this time period. With these figures in mind, Canada’s federally regulated medical market ranks as the highest-performing in the world.

Nonetheless, the financial records of major producers don’t necessarily reflect the all-round success of Canada’s legal cannabis market. For example, well-known industry players like Aurora Cannabis, Canopy Growth and Hexo Corp. have reported billions of dollars worth of losses during recent quarters.