The Canadian cannabis industry is expected to get a big boost with the edibles and derivatives market becoming legal this October. According to a new report from Deloitte, the new segment will be worth about $2.7 billion, with edibles accounting for more than half.
Although recreational cannabis has been legalized for almost eight months, edibles and other derivative products have remained illegal as Health Canada wanted more time to assess risks and prepare for their rollout.
Deloitte survey of 2,000 Canadians suggests the following break down of different components within the derivatives market:
- Edibles: $1.6 billion
- Cannabis-infused beverages: $529 million
- Topicals: $174 million
- Concentrates: $140 million
- Tinctures: $116 million
- Capsules: $114 million
The wider range of products that will be legalized this fall is highlighted by the edibles category, which is expected to be the most popular. In mature U.S. legal markets, cannabis-infused chocolate and gummy bears have proven to be a big hit and are expected to appeal to a broader audience in Canada.
Around half of likely edible users polled by Deloitte said they would consume the chocolate, cookies or gummy edible products at least once every three months. Consumers who are interested in consuming cannabis, the alternative of an edible is more appealing than smoking it. And for patients looking for the medicinal benefits of cannabis, edibles are a safer way to control portions and ensure the correct quantities are being consumed.
Significant opportunities ahead
The launch of the edibles market will open doors for companies to carve out some market share early on. OrganiGram Holdings Inc. (CVE:OGI) looks to position itself as the leader for cannabis-infused chocolates. While companies like Canopy Growth Corp. (NYSE:CGC)(TSX:WEED) are going to bank on the popularity of beverages.
However, Deloitte points out that not every company is going to do well:
“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.”
– Jennifer Lee, Deloitte Canada’s cannabis national leader
Global market to hit US$194 billion
While the projected value of the Canadian market is impressive, Deloitte expects that within five years, the demand for alternative cannabis products will reach US$194 billion. And although opportunities are expected throughout the world, North America, and the U.S. in particular, is where much of the growth is expected to come from.
As more U.S. states legalize cannabis it will uncover significant potential for edibles. In Canada, the coming edible market should benefit most companies with some organic growth, but it will be a drop in the bucket compared to what the potential U.S. market if cannabis is continues to be legalized in more states, or is permitted federally. However, the caveat is the market has no idea how long it will take for that to happen.
*All figures in CAD unless otherwise noted