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Pot use in Canada is about twice what was previously reported, according to a surprising survey published this morning by Cowen and Co.

Canadian pot producers such as Aurora Cannabis (ticker: ACB) have achieved disappointing sales since that country legalized recreational sales to adults in October 2018. So the cannabis bulls at Cowen decided to do a channel check, by surveying some 1,800 Canadians on their use of cannabis and alcohol. The survey found more Canadians than ever use pot, especially edible products. They’re also drinking less beer.

Canada’s illegal pot market must be bigger than expected, Cowen analysts conclude. And that makes the research firm more optimistic about the long-run market that’s available to the country’s licensed producers, once the legal industry gets past early problems with production and distribution.

In previous surveys conducted by the Canadian government, fewer than 15% of consumers acknowledged having used cannabis in the past month. Cowen found that 40% of those it surveyed in Ontario and Alberta reported pot use in the past month. About 75% said they’d used it sometime in their lives, compared with less than 60% in previous government surveys.

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“The growth is not entirely surprising,” writes Cowen analyst Vivien Azer and her colleagues, because consumers are probably more willing to admit their cannabis use now that it’s legal.

Azer concludes that the slow takeoff at companies such as Aurora, Canopy Growth (CGC) and Tilray (TLRY) is not a problem with demand. Canadians are using more pot than they were willing to admit in past surveys. With retail shops scarce, and their shelves empty as producers scale up production, consumers continue to patronize their black market suppliers, Azer figures.

Canadian consumers also said that edibles and vape products were among their favorite ways of using pot. The legal sale of cannabis edibles, beverages, and vapes won’t start in Canada until this fall. So that will be an opportunity for licensed producers to take share from black market sellers.

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With more pot use, Cowen found less beer-drinking.

“As we have asserted in the past,” write Cowen’s analysts, “we believe that beer faces the biggest headwind from the transition to legal cannabis access.” Separately, Canada’s beer sales fell more in March 2019 than any time in the last two years, dropping by 6.8%. “We think this is troubling sign for beer.”

That’s a risk for Canada’s leading brewers Anheuser-Busch InBev (ABI), which Cowen doesn’t cover, and Molson Coors Brewing (TAP), which the firm rates at Market Perform.

With black-market pot sales higher than shown in past surveys, Cowen figures there is a bigger-than-expected opportunity for Aurora, Canopy and Tilray—all rated at Buy by Cowen—and Cronos Group (CRON), which the firm rates a market performer.

“Though adult use revenue development in Canada has gotten off to a slower start,” Cowen says, “we remain constructive on the longer-term market opportunity.”

Write to Bill Alpert at william.alpert@barrons.com