Canada’s still-nascent cannabis industry is facing an existential dilemma.
On one hand, the market has seen impressive sales growth and an expanding ecosystem of brands since the nation legalized recreational cannabis in October 2018.
On the other, the industry is far from immune to macroeconomic woes as it grapples with slowing demand, tightening competition, and pricing pressures.
The result has been slowing growth across most boards, as post-pandemic realities make way into the landscape. One example of that is producer giant Canopy Growth, who over the past year lost $3 billion and even its own bookkeepers.
A report by sales tracking firm Headset showed that sales totals in Canada have grown by 157% from May 2020 to May 2023, which looks like great news until a more sobering picture appears. Between 2022 and 2023, sales grew just 11.8%.
“Each of the four tracked provinces has experienced cooling sales growth over the last three years,” the report said. “At a macro-level, we know that the pandemic created inflated demand for cannabis which was unrealistic to maintain as the industry returned to pre-pandemic market conditions.”
The report suggests that the sales growth seems to come from a rise in the number of stores, rather than growing consumer demand. For example, in Ontario, while store count has increased by approximately 40% over the last year, average monthly sales per store have dropped by around 20%.
“New stores across the country are servicing existing demand in untapped areas rather than an increase in consumer demand,” the report said.
The findings also pointed to a shift in the product landscape. Flower – previously the dominant product category – saw its share of total sales decreasing by 15.8% over the last year. Pre-roll products, on the other hand, have grown by 23.5% in the same period, almost matching flower in terms of total sales.
The number of brands in the Canadian market surged 369% from 2020 to 2023.
The influx of new entrants contributed to a decrease in the median total sales per brand by 70% in the same period, suggesting that the field is becoming more saturated. In 2020, the top 21% of brands captured 80% of total sales, but by 2023, the same share of sales was captured by just the top 12% of brands.
The data also provided insights into pricing dynamics within the industry. For inhalable products, such as flower, the price per gram has flattened since the start of 2022, following a period of significant pricing compression. But non-inhalable products experienced a price drop of 25.3% over the last year, which the firm believes is influenced by consumer preference for higher THC limits in edible packages.
Product innovation is also on the rise, as high-value products, like infused pre-rolls and terpene-forward concentrates and vapor pen cartridges, gain popularity. However, those innovations coincide with a fall in basket size and a steady rise in discounts, which may further cut into the already thin margins for retailers and brands.
Source : https://www.greenmarketreport.com/canadian-cannabis-sales-growth-sputters/