Legalization of alternative cannabis products to create new $2.7-billion market

07 June 2019 4 min. read
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In Deloitte’s annual report on the Canadian Cannabis market, the firm projects that the legalization of edibles and other alternative cannabis products in Canada (slated for October 17, 2019) will create a consumer market worth an estimated $2.7 billion.

According to the Deloitte study, which included a survey of 2000 Canadians, edibles will account for more than half of the alternatives category, at $1.6 billion. The next-most popular category is expected to be cannabis-infused beverages ($529 million), followed by topicals ($174 million), concentrates ($140 million), tinctures ($116 million), and capsules ($114 million).

“According to our research and stakeholder interviews, much of this economic boost will be on top of current cannabis product spending,” said Jennifer Lee, a partner and Deloitte Canada's cannabis national leader, and consumer advisory and analytics practice national leader.

The Canadian market is currently bounded to sale of dried cannabis flowers, which consumers can smoke, vaporize, or convert into edibles themselves.

Combined with previous research from the consultancy, total sales in Canada could eventually exceed $7 billion after the second round of legalization.

Use of alternative cannabis products among current and likely users

The new offering of edibles and beverages is expected to entice consumers that are reluctant to smoke or vaporize cannabis. This novice or “cannabis-curious” is older, often female, and has little interest in combustible cannabis products, instead preferring to hold out for alternative products – what Deloitte terms “Cannabis 2.0” offerings (editor’s note: “Weed 2.0” would have worked better, but the industry obviously doesn’t like that term).

This older, more conservative segment of consumers – versus the “risk taker” segment which skews younger and already consumes flower products – prefer more familiar consumption formats, especially edibles like baked goods. The “risk takers” are expected to be more interested in potent cannabis concentrates that may not be available post-legalization.

Approximately half of likely edibles users (“conservative experimenters,” likely between 35-54 and university-educated) said they plan to consume gummy bears, cookies, brownies, or chocolate at least once every three months.

If you can’t beat them, join them

The report states that alcohol and tobacco companies are looking for avenues to enter the cannabis industry in order to head off loss of market share.

“The introduction of cannabis-infused edibles will clearly threaten the alcohol industry as consumers are using the product for similar usage occasions," said Lee.

Reasons for use of cannabis-fueled edibles by current and likely users

37% of current and likely users of edibles said they would use them as an alternative to alcohol, while 24% of current and 35% of likely users of cannabis-infused beverages said they’d use the products as an alcohol alternative.

Pharma companies are also entering the alternative cannabis market, looking to market products that manage various health and wellness issues (pain, inflammation, anxiety and depression, etc.), with offerings such as cannabis-infused topical ointments and CBD capsules.

Deloitte expects the entry of alcohol/tobacco firms and pharma firms to further drive an already strong M&A market in the cannabis sector.

First Canada, then the world

The global market for alternative cannabis is projected to nearly double over the next five years to US$194 billion, as cannabis laws around the globe continue to relax. Due to “early adoption” on a federal level, cannabis companies in Canada have a number of significant advantages that could help them capitalize on a wider global cannabis market. Deloitte says these include strong government support, access to capital markets, a strong banking system, and a unified and scalable market.

"The global cannabis market is enormous, and Canadian firms are well-positioned to play a pivotal role as this market grows and evolves," Lee concluded. "Cannabis companies with strong professional leadership and business fundamentals, a focused strategy, and a willingness to place bets – while playing the long game to wait out the changing regulatory environments – will be the ones who succeed and prosper."