The cannabis industry on both sides of the border has gone through a wild few years. For retailers, it hasn’t always been easy to manage the hiccups of a new market, from the challenges of legalisation to the explosive demand during COVID-19 to the more recent downturn. What’s in store for the cannabis market in 2023?
Canada’s recreational market is still on an upswing. Despite supply chain issues, product glut, and price wars, more Canadians than ever before are spending their hard-earned dollars on flower, prerolls, edibles, and more.
Yes, the market is going through some growing pains, which is to be expected, but nobody can deny the ongoing upward trajectory. Through this lens, we look at the cannabis market in 2023 to draft a few predictions.
Cannabis Market in 2023: Costs Will Rise in the Grow Room and in Stores
From both a consumer and a retailer perspective, inflation means prices everywhere are going up. Across the entire supply chain, the cannabis industry is especially feeling the pinch of rising costs, from new construction to shipping to staffing.
In one poignant example, as detailed by Hub International, the cost of fertilisers has 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.
While some of the more prominent brands will continue to absorb these costs in order to keep their prices low, for smaller, perhaps less funded companies, rising overhead may be a deal breaker. They’ll have to pass costs on to the end customer if they can’t absorb it. But with bigger brands sticking to ultra-low prices, will consumers still choose their favourite brands if they have a higher price tag?
The good news is that the ongoing price war may be bottoming out. Prices cannot fall forever. Experts are predicting that the market will soon self-regulate as consumer demand evens out and oversupply issues resolve themselves.
As Frederico Gomes of ATB Capital Markets told MJBizDaily in November of last year, “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
Due to the increasing costs mentioned above and oversaturation in certain markets, we also predict many stores will close in 2023. This unfortunate circumstance has been brewing for a few years, especially in markets like Ontario.
There are currently over 3,000 stores in Canada, with almost half in Ontario. As per an MJBizDaily investigation, 40 percent of the companies that filed for insolvency under the Companies Creditors Arrangement Act (CCAA) in 2022 were involved in the cannabis sector.
In an interview for MJBizDaily, Zachary George, CEO of Sundial growers, explained the looming crisis as a “slow motion train wreck.” Sundial has already announced the closure of 11 of its locations in 2021.
George predicts more than 1,000 store closures throughout 2023, although he also suggests there are still opportunities in the country’s underserved markets.
Closures aren’t the only sign. The current climate is also forcing consolidation. As only one example, at the end of 2022, The Green Organic Dutchman and private company BZAM Holdings announced a merger to become the six largest producer in Canada. We predict more of these consolidations in the months to come.
Legal Market to Maintain Dominance Over Black Market
When Canada first legalised recreational cannabis sales, there were notable complaints about the costs and quality of legal weed. This understandably drove many people back to the black market. Now, four years in, the tides have slowly turned in favour of legal sales.
According to the latest survey on Canadians and cannabis, released in late 2022, a large majority of people, 60 percent, now buy cannabis legally. Only four percent of respondents reported sourcing their supply from a dealer, black market website, or illegal dispensary.
Firstly, this is thanks to the price war happening on dispensary shelves. As prices fall, they are more competitive with prices on the black market.
But secondly, cultivators and producers are better at their jobs. So, while the first few harvests of cannabis flooding the legal market were dried out and flavourless, today’s legal flower is just as good as the stuff sold by dealers.
Consumer Preferences Will Stay the Same
Have Canadians shifted their tastes in any notable way regarding their favourite products? According to the recent government survey mentioned above, Canadians’ favourite way to imbibe is, unsurprisingly, still smoking flower. Edibles and vaping came in second and third, respectively.
Consumers still prefer THC-rich products over other cannabinoid combinations. A majority of respondents consumed products with high-THC and low-CBD.
All of which is to say that consumers’ tastes haven’t changed much since the early days of recreational sales. As the market matures, we may see shifts towards more terpene-rich products, but as it stands, high-THC flower and prerolls still reign supreme.
A Few Hurdles, But Still Growth for Cannabis Market in 2023
As MJBizDaily detailed, the Canadian recreational market hit an all-time high in 2022, finishing the year at $4.6 billion. That is 13 percent year-over-year growth since legalisation. While eventually growth will slow and stabilise, most insiders still expect to see a continued upward trajectory in the years to come.
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The TechPOS dashboard facilitates all areas of cannabis retail operations, from inventory management to staff scheduling to detailed sales reporting. All tools make your job easier, meaning you can focus on the areas that count.
Learn more about what the TechPOS solution can do for you. Schedule a demo today.
