We are four years into the Canadian cannabis market, so what can we expect to see in 2022? Some of the initial supply chain and quality issues have settled out. And, most Canadians who want to try cannabis for the first time likely already have.
The trends we will see in 2022 are not earth-shattering but continue the slow and steady pace of market maturity of the previous three years. As a result, we predict more mergers and acquisitions, broader access to products, and the continuation of falling prices.
1. Continued Growth in the Canadian Cannabis Market
According to predictions, in 2022, Canadians will buy more cannabis products than ever before. Although the market may not have ramped up as quickly as global analysts initially projected, sales have continued a steady upward trajectory four years into the adult-use market.
As per MJBiz Daily, 2022 sales will likely hit $4.8 billion in Canada. That’s an expected 13.4 percent compound annual growth rate (CAGR) until 2030.
2. Increased Competition Triggers Price War
Solomon Israel for MJBizDaily reported that across all cannabis product categories, prices continued to plummet across Canada. For example, the price of vape pens and concentrates each fell sharply by 35 percent, flower by 16 percent, and edibles by 11 percent.
In a world where seemingly all other goods are seeing inflation in prices triggered by supply chain issues and a global pandemic, Canada cannabis is experiencing the exact opposite.
As Israel details, this is likely due to steep competition. As detailed by BNNBloomberg, there are currently about 800 individually licensed cannabis producers in Canada, split into recreational (one third) and medicinal (two thirds).
Canada is only four years into legalization, and the market has yet to even out. As a growing number of producers and retailers try to capture a larger market share, these low prices will no doubt continue.
3. Large Producers and Franchises Will Weather the Storm
With the current landscape of steep retailer and producer competition, there will likely be an increased number of mergers and acquisitions over the coming year.
In the interview, BNN Bloomberg Nawan Butt, a portfolio manager at Purpose Investments, indicated that a market with more than 800 producers is not sustainable. He predicts that six major players will come to dominate the entire sector in only a few short years. This will help stabilize the Canadian cannabis market.
The same holds true for small cannabis retailers. Many of which are finding it difficult to compete with the larger franchised brands expanding across Canada. In another BNN Bloomberg report, low prices combined with supply chain issues are reducing gross profit margins. As per BMO capital markets analyst Tamy Chen, interviewed for the piece, “It is hard for us to envision independent mom-and-pop retailers being able to generate sustainable profits in such an environment.”
4. The Launch of the Cannabis Farm Stand
In 2021, several provinces launched a new initiative for cannabis cultivators: the farm stand license or the Farm Gate program in Ontario. This initiative aims to mirror the formula perfected by wineries across the country. It’s also legal in Saskatchewan (although no operations to date), and there may be more provinces following suit.
The Farm Gate program allows cultivators a complete seed-to-sale option. Neighbours and tourists alike can shop hyper-local. Businesses can offer the freshest flower or more of an immersive experience. Plus, for residents in rural areas, there is improved access to legal sources of cannabis in their own community.
But … No Big Regulatory Changes Until 2023
One major point that is missing from 2022 trends in the Canadian cannabis market is federal policy updates. The next big shakeup for the Canadian market will come in 2023, when the federal government is scheduled to amend the Cannabis Act. There will be five years of legal sales at this point, and surely many lessons learned.
Lawmakers may have taken a relatively conservative approach when crafting the original legislation, as no one knew if an adult-use market would increase crime, ER visits, or other negative activities. But, it’s already clear that in 2022, the sky hasn’t fallen, and likely some of the amendments in 2023 will eliminate the more onerous aspects of the current Cannabis Act.
Most trends we’ll see in 2022 are common in a maturing marketplace. That means smaller companies getting consolidated within larger ones. Also, prices evening out to what the market can bear, and slow and steady overall growth.
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