Canada’s cannabis industry will be worth just $5 billion by 2021 — far less than previously estimated, according to a new report from cannabis research firm Brightfield Group which extrapolated the industry’s value based on recreational pot sales post-legalization.

Between mid-October and the end of 2018, total cannabis sales in Canada, in both the medical and adult-use markets was approximately $210 million due primarily to product shortfall from licensed producers, and a major drop in demand from medical consumers of cannabis.

Watch – Cannabis Outlook 2019: Value Canadian Cannabis industry

Chicago-based Brightfield had previously estimated the Canadian cannabis industry to be worth roughly $8 billion by 2021 — this is the first time, however, that actual data of recreational sales across Canada is being used to estimate how big the industry is poised to become.

Brightfield’s latest forecast appears to be relatively conservative.

The relatively modest sales are in contrast to the $43 billion in market valuation of the country’s top ten cannabis companies, eight times more than Brightfield’s forecast of Canada’s domestic industry.

A similar analysis of the industry by New Frontier Data, another American cannabis research firm, noted that the Canadian pot industry could be worth up to $9.2 billion by 2025.

Two critical factors are contributing to subdued sales in the post-legalization environment, according to the report. First, product availability has been limited, and the kinds of products that are legal to consumer — flower and oils — is not nearly enough to lure consumers away from the black market.

“You still can’t get vape pens, or edibles and a whole host of other products that you can find on the black market, so it’s just not enough to draw in new consumers yet,” said Gomez.

Secondly, the Canadian medical market appears to have ground to a halt. “The reason why our forecasts were so vastly different last year and this year has much to do with the sharp deceleration in patient growth and sales on the medical side. I don’t think (the medical market is) going to grow more,” said Gomez.

The report also surveyed 1,500 Canadians across provinces and in different age groups to determine consumption patterns — 60 per cent of Canadians appear to have not participated in the legal recreational market as yet. Approximately 20 per cent have bought cannabis at a retail store, and 13 per cent through provincial websites.

Confusion and cost are the two most commonly cited reasons among Canadians for not participating in the legal market.

Roughly 36 per cent of those surveyed said they were simply waiting for the confusion to clear up before starting to purchase cannabis, and a further 32 per cent said that legal cannabis was just too expensive.

Indeed, the latest data from Stats Canada estimates that on average, legal cannabis costs $9.70 per gram, 50 per cent more than cannabis available on the black market, which usually hovers in the $5 to $7 range.

What was also particularly interesting about Brightfield’s survey was how Canadians’ don’t seem to have much of a brand preference for the legal weed they buy. Canopy Growth Corp.’s Tweed line of products enjoyed a 32 per cent market share, while Aurora Cannabis’ AltaVie line of recreational products appeared to appeal to 25 per cent of Canadian consumers. No other brand — from the more than 100 licensed producers currently operating in the space — appeared to stand out to Canadians.

That isn’t too surprising, Gomez says, considering strict advertising and marketing restrictions that were put into place even prior to legalization. “Once these advertising restrictions are lifted, we’ll slowly start seeing other, perhaps craft licensed producers, creep into the space, and get more noticed.”

But unless lobbying efforts prevail, Health Canada has made it clear that cannabis advertising will continue to be almost as restrictive as tobacco, meaning that newer cannabis companies that were not able to capitalize on looser pre-legalization marketing rules that benefitted brands like Tweed, might struggle for market share.

Original Article – Financial Post

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