The next stage of cannabis legalization in Canada is expected to create a consumer market for edibles and other alternative cannabis products worth more than $2.5 billion a year and generate higher profits for retailers than cannabis products that are already legal, according to Deloitte’s latest annual report on the country’s cannabis industry.

With the global cannabis market worth an estimated US$100 billion combined among the top 13 cannabis markets, these new products will create valuable growth opportunities for the Canadian cannabis sector and help maintain the country’s leadership position.

The report, Nurturing new growth: Canada gets ready for Cannabis 2.0, says the legalization on October 17, 2019, of edibles containing cannabis and cannabis concentrates will create new product mixes that will reach consumers who may have been reluctant to try traditional cannabis consumption methods that are currently available. Many of these novice or “cannabis-curious” consumers will be older, often female Canadians who will prefer more familiar consumption formats, notably edibles such as baked goods.

“The edibles market alone is estimated to be worth at least $1.6 billion a year in Canada, with cannabis-infused beverages adding a further $529 million,” said Jennifer Lee, a partner and Deloitte Canada’s Cannabis National Leader, and Consumer Advisory and Analytics Practice National Leader. “According to our research and stakeholder interviews, much of this economic boost will be on top of current cannabis product spending. The introduction of cannabis-infused edibles will clearly threaten the alcohol industry as consumers are using the product for similar usage occasions.”

The report notes that alcohol and tobacco companies are looking for opportunities to enter the legal cannabis industry to avoid losing market share, which could continue to fuel an already strong market for mergers and acquisitions in the cannabis sector. Pharmaceutical companies are also entering the market, as a growing number of consumers looking to manage various health and wellness issues are expected to turn to alternative cannabis products, including cannabis-infused topicals, upon legalization in October.

Deloitte says Canadian cannabis companies currently enjoy significant advantages over their US and global counterparts, including government support, access to capital markets and the banking system, and a unified market that is more scalable than the fragmented one in the United States. But the introduction of the US Farm Bill will be a game-changer; Canadian companies will need to continue innovating to secure a strong, sustainable competitive position as legislation evolves in other countries.

“The global cannabis market is enormous, and Canadian firms are well-positioned to play a pivotal role as this market grows and evolves,” said Lee. “Cannabis companies with strong professional leadership and business fundamentals, a focused strategy, and a willingness to place bets—while playing the long game to wait out the changing regulatory environments—will be the ones who succeed and prosper.”

The global market for alternative cannabis products is expected to nearly double over the next five years, to US$194 billion. More than half of the estimated C$2.7-billion Canadian market for edibles and alternative cannabis products will be spent on edibles ($1.6 billion), followed by cannabis-infused beverages ($529 million), topicals ($174 million), concentrates ($140 million), tinctures ($116 million), and capsules ($114 million).

Source: Deloitte