A new report revealed that cannabis contributed $43.5 billion to the gross domestic product of Canada since it was legalised in 2018
The report titled, an industry makes its mark, was a collaboration between market advisors Deloitte Canada and the Ontario Cannabis Store. It states that recreational cannabis contributed $43.5 billion to the gross domestic product (GDP) while a further $13.3 billion went to Ontario’s.
It went on to report that $25.2 billion of that contribution comes from labour income and it helped to create 151,000 jobs. For every dollar in revenue or capital expenditures, the industry adds $1.09 to Canada’s GDP. For every million dollars in revenue or capital expenditure, the cannabis sector sustains roughly four jobs in Canada and Ontario.
The industry has generated $15.1 billion in Canadian tax revenue with a further $3 billion for Ontario. Customer’s purchases accounted for $2.9 billion in sales and excise taxes.
Speaking with Cannabis Wealth, the author of the report Rishi Malkani, partner, M&A advisory, and leader of the cannabis practice said: “In the context of Canada, the cannabis industry still lags other controlled-substance sales with only a fraction of alcohol and tobacco sales. However, with the developing maturity of the industry, the potential for further sales increases, new consumers, and the potential for substitution of cannabis for alcohol or prescription medication, there is still significant room for growth.
“In an international context, the Canadian cannabis market isn’t the largest globally and is, in fact, smaller than some US states with legal recreational cannabis (e.g. California). However, it is the most mature federal cannabis market globally. On a sales per adult capita basis, Canada lags other mature US Cannabis markets such as California and Colorado – bringing in $126.95 per Capita in Canada, with ~ $170 and ~$450 per capita in California and Colorado respectively.”
Difficulties in the Canadian industry
The report also commented on diversity within Canada‘s industry while highlighting how not much has changed since it was legalised. It referenced a study from 2020 from the Centre of Drug Policy Evaluation and the University of Toronto that stated radicalised men and women were underrepresented among cannabis company executives and directors.
The findings were based on 700 responses from executives and directors at 222 companies. It discovered that 72 per cent were Caucasian men, 14 were radicalised men and two per cent were racialised women.
The breakdown of the country’s cannabis leadership included 40 per cent South Asian people, 19 per cent who are East Asian, 15 per cent who are Indigenous, 12 per cent Arab and 7 per cent each for those identifying as Hispanic or Black.
Mr Malkani stated that there are a few areas that have created issues in the Canadian market: “Excise taxes are a major pain-point for most cannabis producers. The current model charges a flat rate on flower and non-flower products. While this was manageable in 2018 to 2019 when prices were at a higher level, it has become a contributor to margin compression as prices have come down significantly from their initial levels.
He added: “Currently, Canadian Cannabis Regulations treat THC and CBD products identically, requiring CBD products to be sold in the same channels as more traditional THC cannabis products. This has proved a major hindrance to the growth of CBD products in Canada, which largely appeal to a “Health & Wellness” consumer base who may otherwise be deterred from traditional cannabis dispensaries. The potential for the H&W channel to open up and CBD products to be sold through pharmacies and health stores will be a major growth driver for the Canadian Cannabis Industry in the future.
Consolidation is another issue. The Canadian Cannabis Market was initially fueled by potential for international cannabis exports, rather than the domestic market. Only in the last few years focus has shifted to the domestic market. As such, we have seen a proliferation of cannabis companies in Canada which have ultimately suffered due to the international markets not materializing as anticipated. The industry is currently consolidating to reduce the number of players, with major acquisitions in 2021 including Aphria acquisition of Tilray, HEXO acquisition of Redecan, and Canopy Growth acquisition of Supreme Cannabis.”
The industry is booming since cannabis became legal in Canada in 2018. However, another report shows that it is potentially fragmented with large licensed producers losing market share as a whole.
The Bank of Montreal report from 2021 revealed that the top five licensed producers represented less than 40 per cent of the market in August. This has decreased from 2020 when the producers accounted for half of all retail sales.
The rate of monthly sales decreased despite hopes that lockdown easing would potentially boost sales.
What could a UK market learn from Canada?
As other counties such as the UK watch those with newly created recreational markets, what could be learned from Canada?
Katya Kowalski, head of operations at Volteface commented: “Canada is an excellent case study and means for gathering evidence on cannabis legalisation. The benefits are clear; a legal market better protects consumers, reduces youth access, curbs illicit trade, creates jobs and a new industry. Deloitte’s report highlights the benefits of legalisation, particularly from an economic angle.
