Investment bankers GMP Securities took the pulse of retail recreational cannabis on its first full day in Canada and came away with a number of observations that could factor into how the industry develops from here on out. Wholesale prices in Quebec which appear to be lower than forecasted for most licensed producers, while the group also found a surprising lack of brand awareness by customers across the country.
Canadian marijuana legalization, day one
Day one of the rec cannabis market in Canada may be behind us but much is still unknown about how the industry will shape up once the provinces and territories settle on their respective delivery models and customers become more acquainted with the now legally available products and services.
To get a sense of how things look right out of the gate, GMP sent team members to four different provinces —Alberta, Ontario, New Brunswick and Nova Scotia— and surveyed 100 customers about their purchases, finding a few thematic constants.
For one, most customers (over 80 per cent) bought dried flower as opposed to oil extracts, capsules or pre-rolled joints, and while knowledgeable customers often based their product choices on strain names that they recognized from the black market, general awareness and interest in particular brands or growers was at this point extremely low (under ten per cent).
GMP cautioned that the lack of brand awareness could come down to federal restrictions placed on growers’ ability to advertise while at the same time they offered that the result could be significant.
“According to our sample set, in more than 95 per cent of cases, consumers were unaware of the brands they had just purchased, which raises questions about the large sums of money spent by some LPs to launch their brands,” says GMP.
In Calgary, the team went to a Four20 Premium Market store, one of two dispensaries open in the city, and found an average basket size of $102 per shopper, the highest of the four sites recorded —the two Maritime provinces each had a basket size of $60-70 and Quebec came in at ~$90 (Ontario’s retail is currently online only).
For Ontario, the team checked out the online store and notably found that Aurora Cannabis (TSX:ACB) combined with MedReleaf had the most SKUs (stock keeping units or products) at 31 while Canopy Growth (TSX:WEED, NYSE:CGC) had only 10, while CannTrust (TSX:TRST) came in as the lowballer with an average pricing of $8.55 per gram, 25 per cent lower than the average.
At a Société québecoise du cannabis store in Montreal, GMP surveyed 30 customers and found a demographic dominated by males (75 per cent) with a bias toward a younger (under 35 years) age group, with wait times of four hours or longer to get served.
Out East, the GMP team found an average wait time of 1-1.5 hours at a Nova Scotia Liquor Commission outlet in Halifax, while in New Brunswick customers spoke of the THC and CBD concentrations of various products as being most important in their decision-making process, with some customers favouring high THC products while others expressed disappointment in finding a limited number of CBD-dominant products available.
The bottom line, says GMP, was that the first day of legal weed looked like a success, with the company noting that the long lineups bode well for customers’ willingness to choose the legal yet perhaps more time-consuming option over the perhaps more well-known and/or expedient route of the illegal market.
“Canada has become the first G7 country to legalize recreational marijuana,” GMP said. “This major societal shift is expected to increase the addressable market for Canadian licensed producers by a factor of ten times relative to the existing domestic medical market.”
“Canada has been at the forefront of the rapidly changing global cannabis industry by adopting a medical program in 2013. This led Canadian licensed producers to build pharmaceutical grade production facilities, develop solid cultivation know-how and create a large bank of genetics. Given the above, combined with well capitalized balance sheets, we believe that Canadian LPs are well positioned to become global leaders in the cannabis sector,” GMP said.