Pot Patchwork to Limit Canada Sales to $5.2 Billion by 2024

(Bloomberg) -- Canadian spending on legal pot will increase ninefold to $5.2 billion by 2024, but the market’s potential continues to be hindered by a patchwork of provincial regulations, according to a new report.

After becoming the first major economy to legalize recreational cannabis on Oct. 17, Canadian sales are expected to grow at a compound annual rate of 44 percent to $5.2 billion in 2024 from $569 million in 2018, Arcview Market Research and BDS Analytics said Tuesday. That’s down from a January forecast of $5.9 billion by 2022.

Competition from a well-established illicit market, limited product selection, a slow retail rollout and “languid online distribution” are all inhibiting the growth of the Canadian pot market, the report says.

This resulted in medical patients spending an average of $1,452 on legal cannabis in 2018 versus $3,634 in Colorado and $3,933 in Arizona, while per-person recreational spending is forecast by 2024 to only reach the low end of the $500-to-$1,000 range seen in some U.S. states.

In addition, spending will be “highly regional and tightly tied to provincial-level regulations that created vast gaps in business friendliness across the provinces,” the report says.

Alberta, for example, accounted for 38 percent of Canada’s pot sales in 2018 despite having less than 12 percent of its population. Quebec, by contrast, had 6.2 percent of sales and 23 percent of the population, while Ontario had 36 percent of sales and 39 percent of the population.

“Alberta’s comparatively liberal regulatory regime suggests it will rank among the fastest-growing provincial cannabis markets,” Arcview and BDS said. The western province, where retailers are privately run, is expected to open more than 200 licensed stores in the first year of legalization compared with fewer than 50 in each of the other provinces.

Ontario just opened its first 10 stores on April 1, nearly six months after legalization, while Quebec has 13 government-run stores open to date.

Product shortages have also restricted early sales, forcing Ontario to limit its initial number of retail licenses to just 25, while Quebec had to close its cannabis stores three days a week. This was typical of the U.S. states that legalized before Canada and should ease as more licensed production comes online, the report says.

Unlike some U.S. states that experienced a “meltdown” in medical cannabis sales after recreational use was legalized, Canadian spending on medical pot is expected to remain relatively stable through 2024 because of a well-established patient infrastructure.

--With assistance from Sandrine Rastello.

To contact the reporter on this story: Kristine Owram in Toronto at kowram@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Jacqueline Thorpe

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