Deloitte estimates next round of cannabis legalization will create a new $2.7-billion market in Canada

Canadian cannabis companies well-positioned to capture part of significant global market

TORONTO, June 3, 2019 /CNW/ - 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 C$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."

Other notable findings in the Deloitte report include:

• 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).
• Nearly half of likely edible users are planning to consume gummy bears, cookies, brownies, or chocolate at least every three months.
• Canadian cannabis companies will need to manage consumer expectations, as the preferred edible formats may not all be available when legalization occurs in October.
• Government and the cannabis industry have learned from the first round of legalization, in October 2018, and are committed to improving the roll-out of edibles and alternative cannabis products in October 2019.

Nurturing new growth: Canada gets ready for Cannabis 2.0 is the third annual report by Deloitte on the impact on the Canadian economy of legalizing cannabis. In 2018, A society in transition, an industry ready to bloom looked at how consumption levels might change after legalization and what consumer demand would mean for the cannabis industry, and estimated that total sales could exceed $7 billion in 2019 after the second round of legalization. The latest report takes a broader approach, examining not only Canadian consumer sentiment but also trends and issues affecting the cannabis sector.

For more information and to read the full Deloitte 2019 cannabis report, please visit: Nurturing new growth.

About the study
A sample size of 2,000 adult Canadians was surveyed online across the country between February 26 and March 11, 2019. The sample includes representation from every Canadian province. In addition, Deloitte professionals conducted in-person interviews with a number of individuals closely connected to Canada's cannabis industry. Through Deloitte's strategic partnership with Nielsen and Headset, it also accessed point-of-sale data from cannabis retailers in Colorado, Washington, Nevada, and California for the period between March 2016 and February 2019.

About Deloitte
Deloitte provides audit & assurance, consulting, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights and service to address clients' most complex business challenges. To learn more about how Deloitte's approximately 264,000 professionals—9,400 of whom are based in Canada—make an impact that matters, please connect with us on LinkedIn, Twitter or Facebook.

Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

SOURCE Deloitte Management Services LP

Media contacts: Kyle Wyskiel, Deloitte, 416-354-1574, [email protected]; Marilyne Plouffe, Deloitte, 514-393-5471, [email protected]