The Cannabis Production industry in Canada has quickly become the fastest-growing industry in Canada. As a result, both individuals and companies alike have scrambled to secure their spot amid the country’s “green rush,” bolstered in equal measure by the marijuana industry’s seemingly unending growth prospects and the excitement of participating in something new and groundbreaking.
However, the dust has now settled regarding the legal status of cannabis, as it is apparent that the industry’s projections of massive growth are becoming increasingly difficult to sustain. To this end, IBISWorld estimates that revenue for the Cannabis Production industry increased an annualized 116.3% over the five years to 2020, reaching an anticipated $3.5 billion in 2020 itself. Conversely, industry revenue is only projected to rise an annualized 4.7% to $4.4 billion over the five years to 2025, highlighting the industry’s marked slowdown compared with the present period. In this 2020 cannabis update, IBISWorld outlines the two most significant challenges hindering industry growth moving forward.
Regulatory challenges
Individual provincial laws have made consumers’ access to cannabis uneven overall. In some places throughout the country, buying cannabis products is easy. But in others, it is much more difficult to find a brick-and-mortar shop that retails cannabis. This is because there are simply not enough of them, thus driving consumers to seek out the black market for marijuana products in their areas instead.
The most salient example of this is in Ontario. Data sourced from Statistics Canada indicates that Ontario is Canada’s most populous province, containing 14.7 million people. Yet red tape and a cap on the number of cannabis retail stores have made the distribution of legal cannabis extremely slow across the province, with 24 stores expected to service nearly 40.0% of Canadians. This issue persists in various iterations throughout Canada as a whole, with many consumers located far from industry retail locations.
A thriving black market
The industry’s challenges are compounded by a thriving black market for the industry’s goods. Statistics Canada estimates that 75.0% of cannabis-consuming Canadians continue to use black market marijuana products. Black market marijuana products are not only more convenient to access, but also cheaper in price.
According to the Canadian Broadcasting Corporation (CBC), this is in large part due to the retail price of legal cannabis increasing, while the black market price of cannabis has simultaneously dropped. In Q4 2019, the price of a gram of legal marijuana rose to $10.30 per gram. Meanwhile, a gram of illegal marijuana concurrently fell in price to $5.73, nearly half that of legal cannabis.
This is also the second-widest the gap between legal and illegal cannabis has been following the inception of the Cannabis Act into federal law. With its regulatory environment not yet ironed out and an active black market for marijuana, the Cannabis Production industry must address these challenges through supply chain development if it wishes to return to more robust growth projections during the outlook period.
