Canada’s cannabis retail market has evolved rapidly since legalization, facing both challenges and opportunities. From supply chain disruptions to price wars, retailers navigate a complex landscape. This article explores five critical market predictions shaping Canada’s cannabis industry in 2023.
Canada’s recreational cannabis market continues to grow despite challenges. Supply chain disruptions, product oversupply, and competitive pricing persist, yet consumer spending on flower, prerolls, and edibles reaches record levels.
The cannabis market experiences typical growing pains as it matures, yet industry growth remains positive. Through this lens, we examine five critical predictions for Canada’s cannabis retail market in 2023.
Cannabis Retail Costs Rise Across Supply Chain
From both a consumer and a retailer perspective, inflation drives price increases across the entire supply chain. The cannabis industry especially feels the impact of rising costs, from new construction to shipping to staffing.
Rising Costs Across the Cannabis Supply Chain
Rising fertilizer costs increase cultivation expenses, with effects cascading through the entire supply chain. According to Hub International, fertilizer costs have risen by 80 percent over the last year due to the ongoing war in Ukraine. This directly impacts cultivation costs, but eventually this shock will hit elsewhere.
Dispensary operators managing inventory efficiently minimize the impact of rising input costs on margins. Compliance reporting requirements add operational expenses that cannabis retailers must factor into cost projections.
Small Retailers Face Margin Pressure
Smaller cannabis retailers must raise consumer prices if they cannot absorb rising costs. Consumer price sensitivity may shift purchasing patterns away from premium brands toward cheaper competitors. While some prominent brands absorb these costs to maintain low prices, smaller or less funded companies may struggle to remain competitive without price increases.
Market Stabilization Expected
The price war may be bottoming out, as prices cannot fall indefinitely. Experts predict the market will self-regulate as consumer demand stabilizes and oversupply issues resolve.
As Frederico Gomes of ATB Capital Markets told MJBizDaily, “We think that these may be early signs that industry pricing is bottoming out as fragmentation nears its peak, companies are forced to focus on margins – balance sheets are stretched and access to capital is scarce – and marginal gains in cultivation efficiency diminish.”
Industry-wide Consolidation and Ongoing Closures
Store Closures and Market Consolidation
Rising costs and oversaturation in certain markets lead many stores to close in 2023. This downturn has been brewing for years, especially in markets like Ontario.
Canada currently has over 3,000 cannabis stores, with almost half located in Ontario. According to an MJBizDaily investigation, 40 percent of companies that filed for insolvency under the Companies Creditors Arrangement Act (CCAA) in 2022 were cannabis retailers.
Predicted Closures and Opportunities
In an interview for MJBizDaily, Zachary George, CEO of Sundial Growers, described the looming crisis as a “slow motion train wreck.” Sundial announced the closure of 11 locations in 2021 and George predicts more than 1,000 store closures throughout 2023, though he also identifies opportunities in underserved markets.
Industry consolidation accelerates alongside closures. At the end of 2022, The Green Organic Dutchman and private company BZAM Holdings announced a merger to become Canada’s sixth largest producer. More consolidations are expected in coming months.
Legal Market to Maintain Dominance Over Black Market
Legal Cannabis Market Gains Ground
When Canada first legalized recreational cannabis, high costs and lower quality drove many consumers back to the black market. Four years later, this trend has reversed in favor of legal sales.
According to the latest survey on Canadians and cannabis released in late 2022, 60 percent of respondents now buy cannabis legally. Only 4 percent source their supply from a dealer, black market website, or illegal dispensary.
Price Competition Drives Legal Sales Growth
Cannabis retailers consolidating to all-in-one POS solutions reduce monthly costs by eliminating separate vendor payments for hardware and software. As legal dispensary prices fall, they become more competitive with black market pricing.
Product Quality Matches Black Market Standards
Early legal cannabis harvests were of lower quality than black market products, but current legal flower now matches or exceeds dealer-supplied cannabis in quality. Cultivators and producers have improved their processes, making legal cannabis as desirable as black market alternatives.
Consumer Product Preferences Remain Stable
Consumer Product Preferences Remain Stable
According to recent government surveys, Canadians’ preferred method of cannabis consumption remains smoking flower. Edibles rank second in consumer preference, while vaping ranks third.
High-THC Products Dominate Purchases
Consumers consistently choose THC-rich products over other cannabinoid combinations. A majority of survey respondents consumed products with high THC and low CBD.
Mature Market Trends Point to Niche Products
High-THC flower and prerolls currently dominate consumer purchases, though future market maturation may favor terpene-rich products. Consumer tastes have remained stable since recreational legalization began.
Cannabis Market Growth Continues Despite 2023 Challenges
According to MJBizDaily, the Canadian recreational market reached an all-time high in 2022, finishing the year at $4.6 billion. This represents 13 percent year-over-year growth since legalization. While eventually growth will slow and stabilize, most industry insiders still expect continued upward momentum in the years ahead.
TechPOS equips cannabis retailers with integrated solutions to thrive amid market volatility. TechPOS omnichannel capabilities enable dispensary sales across in-store POS, express checkout solutions for cannabis retail, and integrated e-commerce platforms.
The TechPOS dashboard facilitates all areas of cannabis retail operations, from Canadian cannabis POS system for dispensaries to staff scheduling to detailed sales reporting. This comprehensive approach reduces operational overhead and enables retailers to focus on customer experience and profitability.
Retailers benefit from cannabis retail analytics for cost tracking to manage expenses effectively as input costs rise. Integrated omnichannel cannabis retail e-commerce integration allows retailers to diversify sales channels and improve margins. Additionally, smart menu and digital signage for retailers streamline store operations and customer experience.
Understanding cannabis dispensary owner profitability and margins helps retailers benchmark performance against industry standards. For those planning expansion, cost and profitability of opening cannabis dispensaries provides essential financial planning data.