It’s no surprise that recreational marijuana sales in Canada continue to rise. In fact, a new estimate from ATB Capital Markets predicts that 2022 will see approximately CA$4.8 billion in recreational marijuana sales. This is a substantial jump of about 19% over and above the estimated amount for 2021.
CA$4.8 billion in recreational marijuana sales in 2022 may seem like a lofty goal on the surface. But that estimate has actually been slightly reduced from ATB’s initial estimate of CA$4.9 billion.
According to analyst Frederico Gomes, we can expect to see recreational cannabis sales continue to rise over the next decade. CAGR stands for compound annual growth. Gomes expects to see a CAGR of about 13.4% between 2021 and 2030. This would put recreational marijuana sales in Canada alone at around CA$12.3 billion by the year 2030.
Gomes’ report says “While the industry continues to struggle due to fragmentation and price competition, we believe that players with a lean cost structure, a robust capital position, and operational efficiency can successfully navigate this environment,”
This may seem like common sense to many but it’s especially true in a difficult market such as cannabis. There are some major industry challenges that companies face. While there appears to be a large upside potential and growth opportunity, the competition will be fierce.
Because of this, the companies that have a lean cost structure and can operate efficiently will benefit the most in this environment. The ATB report notes that many smaller companies are already seeing steady growth because of their laser focus and execution.
What Is Holding the Industry Back
Smaller, independently owned stores are struggling. Larger chains such as High Tide and Fire and Flower are making it difficult for the smaller stores to compete. Many of the independently owned stores are having to close which is leading to more consolidation with larger chains.
Previous ATB reports have speculated that there are three main factors that Licences Producers are facing which are keeping down profitability.
- There are literally hundreds of Licensed Producers flooding the market, leading to industry fragmentation
- Marketing restrictions
- Unrealized scale advantages
Gomes notes that consolidation will happen gradually over time but that so far merger and acquisition has not spurred much consolidation. He expects that it will likely take at least two more years before the industry sees meaningful and significant consolidation.