Preparing For Recreational Sales

In April 2017, Canada’s government introduced legislation in the House of Commons to legalize recreational marijuana, proposing that existing licensed medical cannabis producers get first crack at business licenses and setting July 1, 2018, as the target date for legalization.

Canada is leaving it up to each province to determine key regulations that will have a major effect on cannabis businesses, including where marijuana can be purchased and consumed, how it is taxed and who can sell it.

As of early November, only New Brunswick and Ontario have officially unveiled models for how recreational marijuana will be sold, though several provinces have released draft regulations – offering a glance at the direction policymakers in each province are heading.

How big will the rec market be?

Canada’s Parliamentary Budget Office estimates the number of cannabis users aged 15 or older in the country at 3.6 million to 7 million by 2021, with a midpoint estimate of 5.2 million.

While these figures include both recreational and medical users – and it’s unlikely that any Canadian province will allow customers younger than 18 to purchase adult-use cannabis – the ranges provide a general idea of the potential size of the consumer base several years after rec sales begin.

Note that cannabis users can differ considerably in their consumption habits, which will ultimately affect the market and business opportunities.

The retail value of Canada’s rec market is hard to pin down, as the rules and regulations governing the new industry have yet to be finalized.

However, a rough approximation of potential domestic sales can be formed using the number of estimated cannabis users in the country and their corresponding consumption rates provided in the previous chart along with a series of assumptions regarding the development of Canada’s rec market:

• The number of cannabis users aged 18 or older in the country by 2021 will be between 3.4 million and 6.7 million.

• Recreational cannabis will be sold initially for $8 per gram. Based on pricing trends in Colorado’s rec market, this will fall to $6.25 by 2021.

• Assuming Canada’s black-market prices fall at a similar rate as legal marijuana prices, approximately 80% of all marijuana consumption will take place in the legal market.

• 95% of all legal marijuana users will purchase from the recreational market.Set to be the first major country to legalize the sale of recreational marijuana, Canada will likely draw a significant number of international tourists looking to partake legally.

But purchasing marijuana in another country may prove more onerous than simply crossing into another state with adult-use sales, making it difficult to predict how much an impact this will have on the size of the market.

However, even conservative estimates suggest tourist spending on recreational marijuana will be in the hundreds of millions of dollars.