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Canadian recreational cannabis sales total C$907.8M in 1st year of legal market

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Canadian recreational cannabis sales total C$907.8M in 1st year of legal market

Canadian brick-and-mortar and online cannabis retailers reported C$907.8 million in total adult-use sales in the first year of legalization through September, according to government data released Dec. 11.

Since legal sales began Oct. 17, 2018, the adult-use cannabis market grew from month to month despite what many saw as the hampered development of retail stores in the supply chain and nagging competition from the illicit market. Sales in October 2018 hit C$39.6 million, which more than tripled by September to C$121.5 million for the month.

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For the first year of Canadian legalization, the only legal adult-use products for sale were dried flower and cannabis oils. In October 2019, the production and sale of cannabis edibles, extracts and topicals became legal. This expanded market, dubbed legalization 2.0, is still underway with vapes and beverages and will be closely watched in 2020.

The expansion of the market occurring with legalization 2.0 have a significant impact on the industry, Bruce Linton, former co-CEO of Canopy Growth Corp., said in an interview.

"It's going to change global perception of what cannabis products are for a recreational market," Linton said. "And the reason is there's been an opportunity to actually do fruitful investments and research."

Retailers of legal cannabis established more than 400 physical stores after adult-use cannabis became legal in October 2018, and 45% of Canadians live within 10 kilometers of a cannabis store, according to government data.

Ontario, Canada's most populous province, led recreational sales in the first year of legalization with C$216.8 million from October 2018 to September 2019. Ontario allows privately run physical retail stores and has a publicly run online store.

Ontario's first wave of private brick-and-mortar stores was not allowed to open until April 2019, and the province had 24 stores in July, the fifth most in the country, the report said. Government and industry officials are pushing to expand access to legal retail stores in Ontario.

The slow rollout of retail stores in Ontario — now more than a year after legalization — has been a significant drag to national sales. This has resulted in a number of licensed producers recently scaling back capital expenditures into new facilities until the issue improves, said Owen Bennett, a Jefferies analyst, in a Dec. 3 report.

Alberta, the fourth most populous province, was home to the most cannabis stores, with 176. Alberta ranked second with C$195.7 million in retail sales at cannabis stores from October 2018 to September.

Adult-use online sales in the first year of legalization declined in the period from a high of 43.4% in October 2018 to a low of 5.9% in September. The decline was due to the increase in the number of physical cannabis stores, the report said. Most online sales are done under the public retail model, whereby the government runs online storefronts.

"Our government delivered on the promise it made to Canadians to legalize and regulate cannabis," said Thierry Bélair, director of communications for Canada's Office of the Minister of Health, in an email. "We will continue to work with provinces and territories, to displace the illegal market, protect our youth and support public education on the risks associated with cannabis use."

The report said Canada's provinces and territories have instituted a variety of regulatory frameworks to handle the distribution and sale of nonmedical cannabis. The approaches include public, private and hybrid systems for online and brick-and-mortar retail.

Linton said Canada's experiment with cannabis legalization turned out better than he expected. Rather than question Canada's decision to legalize, people are more likely to wonder if more products and more stores should have come online sooner, Linton said.