Thriving brick-and-mortar cannabis retail could deliver a strong blow to persistent black market

The black market is showing considerable resilience despite the fact that recreational cannabis has been legal in Canada for months, but a stronger, larger and well-appointed retail space holds promise as a means to take a bite out of crime.

“Cannabis users are still as likely to purchase cannabis from friends, family or dealers as they are from licensed purveyors,” reports Tom Gierasimczuk, vice president of business development for Resonance Consulting Ltd.

 

 

Is that worrisome? “It is a concern because a significant justification of legalized cannabis was to tax it. If only half of users are being taxed, legalization is only half-doing its job,” Gierasimczuk tells The GrowthOp. “Another significant argument for legalization was to protect consumers. Those protections and product accountabilities don’t exist in a still-thriving black market,” he argues.

The continuing reliance on the black market is one finding among many within a wide-ranging report from Resonance Consultancy and report sponsor, Kelowna, B.C.-based Valens GroWorks, an integrated cannabis company focused on cannabinoid cultivation, extraction, distillation and purification. The Future of Cannabis in Canada: A post-legalization study of national sentiment—reflecting input via Insights West’s survey in December of 1,500 Canadian adults who had used cannabis in the past year and 1,001 people in the general population, representing a mix of users and non-users. To ensure samples are representative, data was correlated with Statistics Canada Census data and weighted for age, gender, region and incidence of cannabis use.

 

 

Survey results indicate 36 percent of the 1,500 cannabis users regularly or occasionally buy cannabis from a friend or family member, slightly higher than the 35 percent who regularly or occasionally buy from a dealer or on the black market. As for licensed purveyors, 32 of polled cannabis users regularly or occasionally purchase from privately run retail stores and 31 percent online from such stores, notes the report’s summary.

Perhaps in support of a stronger legal retail profile is the finding that brick and mortar seems to have some lasting appeal. “Despite the ubiquity of online shopping in Canada, past-year cannabis users prefer buying cannabis from retail stores (47 percent) over online (23 percent), while less than a quarter (23 percent) have no preference and eight percent are unsure,” the report reads.

“There are not enough retail locations, plain and simple,” Gierasimczuk maintains. “This will take time to build out, and when it does, one can project that the black market sales will decrease.”

Gierasimczuk’s recommendation to ensure Canada’s cannabis industry meets its potential and best serves customers?

Being a branding firm, “we’d recommend a loosening of cannabis product marketing restrictions for two reasons: consumers indicate they want as much information about a product as possible; and consumers view cannabis as more of a replacement for alcohol, yet cannabis marketers are saddled with the restrictions placed on tobacco.”

 

A matter of convenience

Convenience reigns supreme for Canadians who took part in the poll, signalling to retailers that shopping experiences must be easy, shelves must be well-stocked and prices must be lower. A key driver analysis to determine the most important factors influencing the overall cannabis purchase experience found a convenient/easy shopping experience was the most important issue, cited by 31 percent of respondents. This was followed by having enough product available, noted by 17 percent of users polled.

In all, 59 percent of cannabis consumers who bought cannabis legally rate their overall buying experience as good or excellent, with some elements scoring well while others show a clear need for improvement. On the positive side, high-quality products and fresh products each received the thumbs up from 70 percent of respondents. High ratings were also reported for having enough information about the product (66 percent) and knowledgeable staff selling the product (65 percent). Less positive were ratings related to low prices (34 percent) and enough product being available (39 percent).

 

Overall consumption

The report shows that 27 percent of respondents report having consumed some form of cannabis in the past year, while 84 percent of those say they have consumed since legalization of recreational cannabis this past October.

Additionally, five percent of polled Canadians report having used cannabis for the first time since legalization. Gierasimczuk says he found that finding interesting. “This suggests the growth for the industry is poised,” he notes.

Canadians who use cannabis tend to kick it old school, with 68 percent of past-year consumers regularly or occasionally smoking cannabis in a joint. That compares to 36 percent who regularly or occasionally consume edibles, 30 percent who regularly or occasionally vape and 27 percent who regularly or occasionally use oil.

Younger users—those aged 18 to 34—are more likely to consume all forms of cannabis, with the exception of oil, which is similar across age groups.

“The joint has some upcoming competition, with 58 percent of cannabis users saying they are likely to consume edibles in the future,” the survey report states.

No conclusions yet, of course, but perhaps that bodes well for canna-dining and canna-tourism. “Our study shows cannabis users having relatively high interest in several cannabis social and entertainment options,” Gierasimczuk points out.

Consider the following options that cannabis users would definitely or probably visit:
* a cafe or restaurant serving cannabis edibles/drinkables (53 percent);
* a consumption place where a number of different cannabis products can be tried (50 percent);
* a cafe or restaurant where smoking/vaping cannabis is currently permitted (50 percent); and
* a hotel where smoking/vaping cannabis is allowed (45 percent).

The two activities that appeal to a more niche user—each at 25 percent of the 1,500 cannabis users—are choosing a vacation destination to visit cannabis growing/manufacturing facilities and tasting rooms, and buying/renting a property with dedicated cannabis smoking/vaping lounges.

“The potential for cannabis-infused tourism and hospitality ventures is significant, given that younger Canadian cannabis users (aged 18 to 34) are more interested in all cannabis entertainment activities listed in our survey,” the report notes.

The growth of the global tourism industry, “combined with the growth of agri-tourism and canna-tourism products, will be in demand by both domestic and international tourists,” Gierasimczuk predicts.

Chris Fair, president and CEO of Resonance Consultancy, suggests in the report that the cannabis industry could follow a path similar to that of the craft beer, and food and wine tourism industries. The rising popularity of the two industries “has positively impacted the real estate and tourism industries, as well as local economies, over the past 10 to 15 years. And the legal consumption of cannabis will be no different,” Fair contends.

 

 

In fact, the future of the cannabis industry could perhaps be even brighter. Findings show 63 percent of cannabis users polled “think cannabis is better than alcohol in terms of being healthier/less unhealthy and having fewer side effects. Additionally, 57 percent believe cannabis is less addictive than alcohol,” the report states.

Matters of health are also central to cannabis on the medical side. Just 14 percent of past-year Canadian cannabis users surveyed currently have a medical prescription for cannabis. “The top two reasons for consuming cannabis are to relax (79 percent, regularly/occasionally) and for fun/recreation (74 percent), followed by stress relief (69 percent) and helping users sleep (60 percent),” the report shows.

As well, 55 percent of cannabis users regularly or occasionally consume cannabis to reduce anxiety, half use it to provide relief for a medical illness/condition and 46 percent use it to help them escape.

 

Anticipated market developments

As the cannabis industry—projected to generate almost $4.5 billion in 2019—grows, the report expects that so too will the number of consumers. “We’re already seeing shifts in consumption preferences, social and medical environments and more, driving cannabis to slowly take over as a substitute for recreational choices like alcohol and medical solutions such as opioids,” Everett Knight, executive vice president of strategy and investments for Valens, notes in the report.

The review points out that perils in the cannabis industry are outweighed by payoffs, including that cannabis legalization ushers in a new tax source, better quality control and jobs. “Fuelled by homegrown and international investment and innovation, entrepreneurs are creating new companies, sub-sectors and opportunities ranging from well-paying, entry-level work (sometimes with shares) to university programs supported by massive infrastructure investment,” the report adds.

The hope is the findings “will help governments, businesses and entrepreneurs prepare to capitalize on one of the next decade’s biggest opportunities for made-in-Canada innovation,” Fair says in the report. Results are meant “to understand how legalization has affected attitudes toward consumption, to develop a profile of current cannabis consumers and, most importantly, to identify how and where Canadians plan to consume cannabis in the future.”

 

Want to keep up to date on what’s happening in the world of cannabis?  Subscribe to the Cannabis Post newsletter for weekly insights into the industry, what insiders will be talking about and content from across the Postmedia Network.