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Is your brand ready to take advantage of the cannabis culture?

The author(s)

  • Michael Rodenburgh Executive Vice President, Canada
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It might not surprise you to learn luxury jewelry company Tiffany’s is valued at roughly $15 billion dollars, after all they deal in diamonds, engagement rings and dreams. What may surprise you is that as recently as last week Tilray was valued at a similar amount. If you haven’t heard of Tilray, they are one of Canada’s first licensed producers of medical cannabis. Tilray has substantially less sales than that of Tiffany’s, reflecting a huge amount of investor interest in Canada’s new recreational activity.

Tilray has shown us there is big money in marijuana. With its legalization on October 17, 2018, there is an ever-mounting euphoria over Canada’s cannabis companies. Since Canada is one of the first nations to legalize recreational adult-use cannabis, many are watching to see how the industry develops and matures. One big question is whether the growth in the sector can justify the sky-high public valuations of the largest cannabis companies?

First, we must consider the numbers. Health Canada has reported an increase in a dramatic growth in medical marijuana patients since April 2017 when it started tracking the data, growing from 175,000 to nearly 300,000 as of March 2018. That’s a 70% increase in active client registrations that are officially booked, but the proportion of ‘unofficial’ cannabis users is by far greater. Ipsos’ latest data suggests that 21% of adult Canadians are cannabis users, which would put the number of users closer to 6 million.

It is fair to say that Canada’s cannabis companies are gearing up for a massive influx of demand. But what will that demand look like? New consumer categories will evolve. Ipsos’ research reveals there are some barriers to smoking pot (the smell, inability to smoke indoors and health concerns regarding smoking). Canada’s cannabis companies are already looking for opportunities by partnering with traditional consumer packaged goods companies and alcohol companies. In the coming years, these partnerships will yield various new types of edibles and beverages, all designed to capitalize on the evolving acceptance of cannabis. Given this, it is expected that another industry boom will take place in 2019, when Health Canada allows cannabis edibles to enter the market.

With so much money at stake in the marijuana market, there is a lot of competition in this already crowded marketplace. Canada’s cannabis companies will need to be strategic on where they place their resources and how they manage risk. Harvard Business School professor Clayton Christensen has been quoted saying that among the 30,000 new consumer products launched each year, 80% of them fail. Given the massive amount of money that has flowed into our cannabis companies, the stakes couldn’t be higher. Right now, it’s impossible to predict which companies will win or lose, but if the historical failure rates apply, the winners will be out outnumbered by the losers.

Notwithstanding that, there is no question cannabis will be big business. As a point of comparison, the alcohol business in Canada is worth $22 billion dollars per year. But Statistics Canada has estimated that the annual spending on cannabis was $5.7 billion dollars last year. With more Canadians indicating that they are willing to consume cannabis once it’s legal, the market is sure to grow.

For more on this topic, please check out our latest research examining cannabis in the workplace.

The author(s)

  • Michael Rodenburgh Executive Vice President, Canada

Consumer & Shopper