It’s now been just over two years since Canada legalized cannabis — the first major developed nation and the second country in the world to do so. At the time of legalization in 2018, there were many unknowns, including whether the cannabis market would positively impact Canada’s economy and, more importantly, how.
When cannabis was legalized in Canada, there were certainly a few hiccups. This brand new industry had no existing framework, nor a similar one after which to model itself. A custom infrastructure made up of new policies and regulations had to be developed to support it, and there was constrained supply at the onset, which limited the number of retail stores that could launch the industry in a big way. Despite the evolving environments, the cannabis industry grew quickly with 75 million grams of cannabis sold through the Ontario Cannabis Store (OCS) between April 2019 and September 2020. As the kinks in regulations, policies, and supplies were worked out, the industry began to flourish.
Ontario quickly became a hotbed for licensed producers (LPs). Peter Graham, managing director of investment banking with Echelon Wealth Partners, which works with public and private companies in the cannabis industry by providing advisory services for raising capital, mergers and acquisitions, and more, says this steady growth in the province can be attributed to Ontario having a strong talent base and greater access to capital pools. Plus, the province is one of the largest cannabis markets in Canada. He’s right. According to a spokesperson with the office of the Ministry of Finance and an Insights Publication released by the OCS, in the short period from July to September 2020, Ontario’s share of recreational cannabis sales was the highest in the country at nearly 29 percent.
Other factors contributed to this speedy growth as well, such as willing host communities. The Municipality of Durham, specifically Clarington, became the flagship of the host community in Ontario. While other municipalities had challenges with overcoming the stigma of cannabis and accepting the industry with open arms, Clarington laid out the welcome mat, creating a clear pathway through an abundance of service land, facilities for purchase, and an eagerness to connect industry players with the municipality and other sources. For LPs, this pathway was very enticing and the industry within Durham Region boomed. Canopy Growth Corporation, for example, had put their stake in the ground in Bowmanville seven years ago, and over the years, the business grew within the region. Others, like Starseed, moved their operations into existing buildings in Durham. Canopy and Starseed’s choice in growing their business out of Durham Region laid the groundwork for welcoming more investments in the industry.
Pricing and product also played a role. In the latest quarter of available data provided by the OCS, dried flower made up 60 percent of sales volume over other forms between July and September 2020, and the OCS has worked with LPs across the nation to create a broad catalogue of products with 1,120 unique SKUs available as of September of last year. Also, in response to market feedback, the median dried flower price dropped by 25 percent between April 2018 and March 2020, drawing profitability away from the illegal market.
Like all industries, however, the cannabis industry felt the impact of the pandemic in 2020. For communities like Clarington, COVID-19 threw a wrench in the security and momentum of many projects. Due to fluctuations in the
investor-reliant market and investors lacking confidence in it, many projects stalled, and businesses had to restructure, make cuts to pave way for profitability, and realign their strategy. As Canopy’s facility in Bowmanville was one of its smallest, it was shuttered, as was Starseed’s facility with the difficult decision to combine the Bowmanville cultivation facility with their Aurora location.
Despite the pandemic, cannabis stores have been popping up in the province like weeds. In 2020, Ontario saw 200 stores compared to the 50 or so stores that existed in 2019.
All that said, Ontario’s cannabis industry is far from doom and gloom. A change in strategy, increased access points, maturing product offerings and a larger consumer base have all contributed to consistent growth despite the current operating environments.
The largest change to come with the pandemic was a pivot from cannabis once being prohibited two years ago, to being considered an essential service by the government today. Because of this, Graham says the cannabis industry has had a much easier time compared with other industries. “LPs already had stringent SOPs and cleanliness procedures in place, so they were well-equipped to handle the efforts required during the pandemic,” he says. “Also, retailers who were forced to shut their doors while in the several lockdowns Ontario has experienced, have been able to utilize technology to allow for curbside pick-up and delivery — many of them instituting these efforts within a few days once permitted.”
In fact, despite the pandemic, cannabis stores have been popping up in the province like weeds. In 2020, Ontario saw approximately 200 stores compared to the 50 or so stores that existed in 2019. This increase in access points has been enthusiastically welcomed, given the increase in cannabis consumption during the pandemic. The number of consumers choosing legal cannabis is driving this need for much broader access across Ontario. So much so that at the beginning of September 2020, the government of Ontario had directed the Alcohol and Gaming Commission of Ontario to double its licensing pace from five cannabis retail store authorizations per week to 10 per week. This is anticipated to enlarge by the next quarter.
With the addition of retail stores in Ontario, at a pace of 80 per month in December 2020, compared with 20 a month back in September, comes job creation. “Until we hit a saturation point with both the LPs and retailers, we will continue to see growth, albeit slowing until that saturation point, unless new regulation changes are introduced for places like consumption lounges,” says Graham.
For areas like Clarington, where the pandemic seemingly hit hard, there remains the potential for job creation through secondary services that heavily support the cannabis industry — plumbers, lighting technicians, packaging, and even research and development — which can bolster the growth of the cannabis ecosystem through the supply chain. The increase in access points and product availability is creating promise for the industry amidst the pandemic, but so is a change in strategy. Bonnie Wrightman, manager of business development with the Clarington Board of Trade and Office of Economic Development, sees a changing mindset from “growth at all cost” to a more focused approach, which is steering Durham Region’s cannabis economy back into a promising direction. “The big companies are re-strategizing to keep their foothold in the market, which opens opportunities for small-scale cultivators,” she says. Small-patch cultivators are on the rise, with lesser production in smaller units rather than large-scale cultivation. Wrightman has heard increased interest in micro-licenses for smaller spaces like greenhouses and farmhouses. Companies like Cannapiece Corporation currently have a site plan for phased-development in Clarington for a mass-cultivation facility where investors can invest in individual rooms, which are managed by Cannapiece but belong to the investor. Wrightman also predicts that there may be a shift from LPs occupying several-thousand-square-foot facilities for cultivation to utilizing more outdoor agricultural land and facilities.
Consumer preferences are also changing, and product offerings have matured to assist the industry in keeping its footing. Businesses like Cannapiece plan to use their upcoming mass- cultivation facility in Clarington to harvest product and then ship it to their Pickering facility to make topicals, edibles, beverages, and more, expanding choice for cannabis consumers. OCS continues to work with LPs to broaden its cannabis catalogue beyond dried flower to include vapes, pre-rolls, seeds, and more. Graham says that as the industry matures, we will see it resemble more traditional industries, in which groups are less vertically integrated and specialist companies evolve in certain parts of the value chain. “We have already seen it with extractors, and we expect more specialization like manufacturing of different product types to follow soon.”
Adam Jeronimo, business development lead with the Clarington Board of Trade and Office of Economic Development, says we will soon see secondary markets for cannabis evolve. He anticipates that the hemp plant could be a strong contender for being a secondary market. “Clarington has a lot of agriculture and farmers in the community who may consider putting hemp into their crop rotation in the future,” he says. “They can still extract CBD, as well as use the entire plant, whether through processing or manufacturing, to make other products such as clothing, food, and ‘hempcrete,’ which is more durable than concrete. Car manufacturers are even considering using hemp to make car doors.”
While the economy may appear on the outside to have slowed down in Ontario, the reality is quite the opposite. With an increasing consumer base, new strategies, and an expansion of products, the economy is expected to thrive year over year. Continued support for existing and new LPs — from regions like Clarington — is also key to the continued success of the cannabis industry, with its affordable land for cultivation and construction of new facilities, as well as assistance with secondary services and direct connections to a variety of sources within the municipality.
Will we ever see a decline within the cannabis industry? Not in its contribution to Ontario’s economy. The stigma of cannabis use, however, is beginning to flatline, driving both curiosity and consumption among Ontarians — adding to Ontario’s economic boost. “I think the stigma surrounding cannabis is becoming less and less pronounced. We have seen increased discussions in mainstream media about cannabis, increased medical and legalization programs globally and it even became an election topic during the 2020 US presidential election,” Graham says. “I think that the availability of brick-and-mortar stores is helping to reduce unknowns about cannabis for the average non-cannabis consumer, as they can now find a clean, open, and engaging environment to learn about marijuana.”
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