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Message: Canadian Cannabis Sales Growth: An Analysis
Statistics Canada reported that Canadian cannabis sales on a retail level for June continue to show growth across Canada, driven by new retail locations in Ontario, British Columbia, and Alberta
Statistics Canada released June data on cannabis retail sales last week. Nationwide, June retail sales hit $91.1M, which implies an annual run-rate of $1.1B in cannabis sales across Canada.
In Canada, unadjusted sales of cannabis in stores have grown by 120% between October 2018 and June 2019 (Figure 1). In our opinion, recreational cannabis sales are set to continue growing with the upcoming legalization of edibles expected in October 2019. With the increasing demand for cannabis products, there are concerns for Canada’s ability to avoid a supply shortage. For instance, Ontario, the most populous province in Canada, currently has 25 retail locations (plans to increase to 67 by October 2019). As it is a heavily-concentrated area for cannabis companies, with Canopy Growth and Aphria being headquartered in the province, there is the largest demand for cannabis at about 2.9M users. We believe that there are currently not enough retailers to meet demand and as more retailers come on-line, nationwide sales are expected to increase.
Figure 1: Statistics Canada: Cannabis Legal Retail Sales
Source: Statistics Canada, Ubika
Based on Statistics Canada’s June retail sales data, retail sales are at the highest level since legalization back in October 2018 and have reached an annualized run-rate of $1.1B. Retail sales grew 6% month-over-month (MoM), a decrease of 900 basis points from the prior month. By our estimates this represents ~20% legal market penetration of the illicit market, as Statistics Canada reported that in 2018 total sales of cannabis in Canada totalled ~$6B.
Figure 2: Statistics Canada: Sales Figures by Province
Source: Statistics Canada, Ubika
There was an initial bump in retail sales in April 2019, which coincided with new store openings nationwide particularly in Ontario, but that growth seems to have tapered off in June. Notably, Ontario, Quebec, Alberta, and British Columbia have seen MoM growth of 13%, 8%, 5%, and 18%, respectively, driven by 69 new brick-and-mortar retail locations opening from April to June (24 in Ontario, 2 in Quebec, 30 in Alberta, and 13 in British Columbia). Retail sales are expected to continue to increase as additional retail stores are added, particularly in Ontario. Currently, Ontario has approximately 1 store per 115,000 people, compared with Alberta, which has 1 store for every 10,000 people. Ontario has ~740 liquor stores (1 store/20,000 people) and Alberta has ~875 liquor stores (1 store/5000 people). We are of the opinion that Ontario could support ~1,500 cannabis retail stores, which would bring store saturation to ~1 store/10,000 people. Going into the second half of 2019, we expect steady growth in store openings, in particular Ontario, where the OCS has announced the 42 winners of the cannabis retail lottery, which will bring the total number of retail locations in Ontario to 67. This highlights that with an already underserved market, the provinces will have to start increasing the number retail locations per province to satisfy demand.
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