The first year of legal cannabis in Canada has been interesting, to say the least.
When it was first legalized in October of 2018, Canada became the first industrialized nation to fully legalize cannabis. The eyes of Wall Street were firmly fixed on this burgeoning market, fully expecting the cannabis industry to be the next big thing.
And the initial showings were promising.
Canadians bought some $43 million worth of weed in the first two weeks that it was legal. Demand was so high that there were concerns about shortages among medicinal users.
However, that first wave of success would not be sustained, and the Canadian market would have a turbulent first year.
After a Strong Start, Canada's Cannabis Industry Falters
That $43 million showing was a strong start, but the market just wouldn't exhibit the kind of growth that analysts were anticipating. Over the next 12 months, the Canadian market would take around $1.1 billion in sales.
That number sounds impressive at first, but then recall that the state of California is projected to triple that sum all by itself in 2019.
And cannabis stock prices have reflected this disappointment. Even the largest suppliers seeing only minimal growth over the last 12 months.
So Why Has the Market Underperformed?
There are a few reasons why the Canadian cannabis industry has struggled in its first year, many of which are outside of its direct control.
For one thing, the government was ill-prepared to handle the legalization process. Health Canada processes applications for the cultivation, processing, and sale of cannabis. A single application could take months to process, and Health Canada had more than 800 sitting on their desk on day one.
So from the get-go, the inability of the government to quickly process applications created a throttle on the supply. In short order, this throttle would soon cause a shortage.
In the interim, it would seem that the black market has stepped in to meet demand. You see, it's not that Canadians aren't using cannabis. It's just that while the private and public sectors struggled to get sorted, criminal elements were happy to fill the void.
Plus, with shortages come higher prices, further incentivizing consumers to seek out cannabis from cheaper sources. By the time the supply issues were attended to, legal sellers were already losing market share.
Looking towards the Future
Few, if any industries, present the potential for long-term growth that legal cannabis promises. It is no longer a matter of if, but merely when more governments will move towards legalization.
As the Canadain government moves to broaden the variety of cannabis products available, a cannabis industry group has announced that the shortage that plagued the market's early life is officially at an end.
The market is now set up for a record expansion. This means that moving forward, retailers will need to adjust their prices to reflect the new state of the market. If you find yourself in this position, check out our guide on setting marijuana prices for some insight into setting fair and profitable prices.