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Canadian Legal Recreational Cannabis Market 2018-2022

  • ID: 4457165
  • Report
  • January 2017
  • Region: Canada
  • 50 Pages
  • GTV Capital
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Consumption of Recreational Cannabis will Increase to 860.8 Metric Tons by FY2022

FEATURED COMPANIES

  • Aphria
  • Aurora Cannabis
  • Canopy
  • Cronos Group
  • Harvest One
  • HEXO Corp
  • MORE

In 2018, the Canadian government passed the Cannabis Act (C-45) that commercialized Canadian adult-use cannabis markets to combat the black market for cannabis. However, most research reports on the adult-use market completely omit the interplay between the legal and illicit markets. This report was authored to fill the void in the consensus narrative; it is based on the cross-market price elasticity of demand of individual cohorts.

Second order model drivers include Canadian population dynamics, producer efficiency gains, and spillover effects of recreational legalization. The author of the report is thought leader in the industry and his market commentaries have been featured in leading publications such as Forbes and Reuters.

In summary, the research finds:

  • Canadians will consume 473.7 metric tons of recreational cannabis in FY2018; consumption will increase to 860.8 metric tons by FY2022.
  • At the inception of legalization, pretax prices will average $8.33 CAD per gram, falling 28.3% to $5.97 CAD by FY2022. As in any black-to-white market, legal producers must underprice illegal ones to maintain a sustainable market, and thus, Canadian Licensed Producers should seek to price competitively and pass on associated costs and other efficiency gains to end consumers.
  • Throughout the modeling period, heavy and regular users drive the lion's share of demand (see graph above), 95% in FY2018 to 94.5% in FY2022.
  • Total revenues will increase over time, with higher sales volume offsetting downward pricing pressure. Revenues of $5 billion CAD are projected for FY2018, increasing to $7 billion CAD in FY2022.
  • Importantly, increasing revenues should not be conflated with overall market growth; it is instead a function of existing consumers moving from the black to the white market. Contrary to the consensus view, it is predicted that total market demand will contract by an average of 0.98% annually over the four-year period in the absence of population growth.
  • With expectations for overall market growth tempered, investors may wish to focus on Licensed Producers that emphasize cost-efficiency.
Note: Product cover images may vary from those shown
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FEATURED COMPANIES

  • Aphria
  • Aurora Cannabis
  • Canopy
  • Cronos Group
  • Harvest One
  • HEXO Corp
  • MORE

1. Executive Summary

2. Introduction

3. Who Drives Recreational Sales?

  • Consumer Profiles
  • Puff, Puff, Pass: Sales to New Users Will Be a Flash in the Pan
  • Legality Bump: Word of Mouth Effect
  • Risks of Narcotic Abuse
  • Will Edibles Take a Bite Out of Cannabis Flower Sales?

4. Unpacking Cannabis Expenditure

  • Link Between THC Yields and Prices Is Overwrought
  • Bridging Perception and Reality: The Chemistry and Biology of Potency
  • A Zero-Sum Game: Tug of War Between BMC and CRCM
  • Segment Proclivity for Contraband Procurement

5. Supply-Side Dynamics

  • Death and Taxes
  • The Dealer Next Door
  • Cost Structures by Growing Operation

6. End Game: Revenue Trajectory

  • Dissecting Aggregate Demand
  • End Game: Revenue Trajectory

7. Licensed Producer Profiles

  • Aphria Firm Profile
  • Canopy Firm Profile
  • Emerald Health Therapeutics Firm Profile
  • Harvest One Firm Profile
  • Invictus MD Strategies Corp Firm Profile
  • OrganiGram Holdings Inc Firm Profile

List of Exhibits
Exhibit 1: Heavy and Regular Consumer Demand Rules the Day
Exhibit 2: The Cost of Evasion Adds Up
Exhibit 3: Consumers Spent More on Illicit Cannabis Than Licit Spirits
Exhibit 4: Survey Data Implies That Cohort Sizes are Static…
Exhibit 5: …They Are Dynamic and Fluctuate with Time
Exhibit 6: Sources of Reporting Biases
Exhibit 7: Cumulative Cannabis Habituation Risk
Exhibit 8: Incremental Cannabis Habituation Risk
Exhibit 9: Canadian Demographics Are a Headwind
Exhibit 10: Cumulative Alcohol Habituation Risk
Exhibit 11: Cumulative Cocaine Habituation Risk
Exhibit 12: Trial Rates are Driven by the Word of Mouth Effect
Exhibit 13: Potential Adopters Live Up to Their Name
Exhibit 14: Cannabis' Overdose Risk Is Lower Than of Other Narcotics'
Exhibit 15: Cannabis Risk Factor Loads Are Different from Alcohol's
Exhibit 16: Whose Got Time for That?
Exhibit 17: Prices Are Driven by Perceived THC Content…
Exhibit 18: …Not Actual THC Content
Exhibit 19: Legal Premium Will Funnel Demand into Illicit Market
Exhibit 20: The Most Lucrative Segments Are the Most Price Sensitive
Exhibit 21: Cannabis Spend is Highly Skewed
Exhibit 22: $1 Price Hike Can Dent Heavy Consumers' Wallets
Exhibit 23: Occasional Consumers Face Raw Deal
Exhibit 24: It is Hard to Do a Hard Time
Exhibit 25: Dissuading Contraband Purchases is No Mean Feat
Exhibit 26: Excise Tax = Cost Advantaged BMC
Exhibit 27: Coordinated Tax Regime Is Unlikely
Exhibit 28: Sin Taxes Will Likely Be Driven by Spillover Effects
Exhibit 29: Cannabis Is Usually Sourced from Friends and Family
Exhibit 30: Pound Per Pound Sin Taxes Offset Efficiency Gains
Exhibit 31: Legal Demand Gains Driven by Most Frequent Consumers
Exhibit 32: Heavy Consumer Contraband Purchases Will EBB
Exhibit 33: Regular Consumer Demand Cascades Into CRCM
Exhibit 34: Price Volatility Is Pink Noise
Exhibit 35: APH Share Performance
Exhibit 36: APH Key Statistics and Ratings
Exhibit 37: APH Selected Fundamentals
Exhibit 38: WEED Share Performance
Exhibit 39: WEED Key Statistics and Ratings
Exhibit 40: WEED Selected Fundamentals
Exhibit 41: ACB Share Performance
Exhibit 42: ACB Key Statistics and Ratings
Exhibit 43: ACB Selected Fundamentals
Exhibit 44: CRON Share Performance
Exhibit 45: CRON Key Statistics and Ratings
Exhibit 46: CRON Selected Fundamentals
Exhibit 50: EMH Share Performance
Exhibit 51: EMH Key Statistics and Ratings
Exhibit 52: EMH Selected Fundamentals
Exhibit 56: HVT Share Performance
Exhibit 57: HVT Key Statistics and Ratings
Exhibit 58: HVT Selected Fundamentals
Exhibit 59: GENE Share Performance
Exhibit 60: GENE Key Statistics and Ratings
Exhibit 61: GENE Selected Fundamentals
Exhibit 62: OGI Share Performance
Exhibit 63: OGI Key Statistics and Ratings
Exhibit 64: OGI Selected Fundamentals
Exhibit 65: FIRE Share Performance
Exhibit 66: FIRE Key Statistics and Ratings
Exhibit 67: FIRE Selected Fundamentals
Exhibit 68: HEXO Share Performance
Exhibit 69: HEXO Key Statistics and Ratings
Exhibit 70: HEXO Selected Fundamentals

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  • Aphria
  • Aurora Cannabis
  • Canopy
  • Cronos Group
  • Emerald Health Therapeutics
  • Harvest One
  • HEXO Corp
  • Invictus MD Strategies Corp
  • OrganiGram Holdings Inc
  • Supreme Cannabis
Note: Product cover images may vary from those shown
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