If Canada’s experience with legal recreational marijuana parallels what is taking place in U.S. states, we have much to anticipate in terms of entrepreneurial ferment, job creation, wealth expansion and boosted tax receipts.
Legal recreational marijuana has been the law of the land in Colorado for three and a half years, and a little more than three years in Washington. Oregon staggered its roll-out of recreational marijuana between 2015 and last year, Alaska’s and Nevada’s programs are up and running, and soon to follow are Massachusetts, Maine and the cannabis behemoth known as California.
And in Canada, we are marching towards nationwide legalization sometime next year.
Data from cannabis market research leader BDS Analytics shows that even as the pot boom enters its fourth year in Colorado and Washington, the marijuana marketplace continues to grow at a rapid pace.
Year-to-date through April of this year, cannabis sales in CO, OR and WA reached $916.13 million, which is 35 percent ahead of last year’s sales. Growth like that in established markets is simply jaw-dropping. In most industries, growth of a handful of percentage points is considered a break-out-the-champagne triumph.
While sales overall boomed, growth was especially pronounced in a few categories and we are wise to study sales trends in U.S. states to help understand what the Canadian cannabis marketplace might look like soon after joints, vape pens and brownies start being sold to recreational consumers.
The U.S. cannabis market falls into a number of categories, but the three dominant are flower (bulk cannabis sold by weight), concentrates (products like vape pens, shatter and wax) and edibles — everything from refrigerated sodas to cooking oils to slices of cherry pie.
Among the top three, flower sales dominate in all states. During the first quarter of 2017 in all channels between Colorado, Washington and Oregon, flower captured 52 percent of the broader cannabis market. Meanwhile, concentrates snagged 24 percent of the market, and edibles earned 12 percent.
Flower’s dominance is impressive, but the other categories are muscling into its domain. During Q1 2016, for example, flower owned 60 percent of the market.
The slow but steady increase of concentrates sales, at the expense of flower, rooted in Colorado, Washington and Oregon and could easily describe the Canadian marketplace once full legalization is in place. Edibles, while a strong cannabis market, has grown quite a bit in each state over the years in terms of sales, but market share between the states has tended to bounce around between 11 and 13 percent. Meanwhile, concentrates’ market share grew from 14 percent in 2014 to 18 percent in 2015, 21 percent in 2016, and 24 percent so far in 2017.
The concentrates category is growing across the board, for the most part, but the market leader is vape pens and cartridges. For the first quarter of 2017 in CO and WA, for example, vapes expanded by 86 percent percent, on sales of $44.52 million (we exclude studying growth in vapes in Oregon because the category was not for sale in recreational stores during Q1 of 2016.
Meanwhile, flower sales do continue to positively boom in states with recreational sales regimes. In Colorado, sales of flower during the first quarter of 2017 reached $178.6 million, up 20.4 percent from the same quarter in 2016 (and all of the growth came from the recreational channel, which saw sales increase by 35.5 percent, while medical fell by 4.5 percent).
In Washington State, the trend for flower is even more dramatic, up 44.5 percent during the first quarter of 2017 compared to the same quarter in 2016.
The Canada experience with recreational marijuana will hinge, in part, on the regulatory framework. Laws can have immense impact on sales trends. In Washington State, for example, the state banned THC-infused candy when recreational sales first began in June of 2014. The state eventually allowed candy, but sales of the category in the state today, at 32 percent of edibles during Q1 2017, are far behind the market share for candy in Colorado, which stands at 50 percent.
Laws do matter, especially in an industry like cannabis which is likely to experience complicated and wide-ranging regulations regardless of whether the laws are being set in California or Canada.
We are eager to continue to engage with provincial and federal officials and industry stakeholders as Canada continues its progress towards full legalization next year. Based on what has flowered in the United States, we have much to look forward to in this blossoming industry.