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Cannabis Legalization One Year Later

On October 17, 2018, Canada made history by becoming the first G7 country to legalize recreational cannabis.

At five past midnight, a dispensary in Saint John’s, Newfoundland recorded the first sale. At 1 a.m., in Winnipeg, Manitoba, city police issued their first ticket for consuming cannabis in a car, during a traffic stop. In Toronto, one cannabis site offered live music, a countdown and a “bud drop” at midnight.

A year later, the country continues to cope with supply shortages, legal issues, and slow opening of retail stores.

The Good News About Legal Cannabis

While the year has been bumpy at times, there is lots of good news. For example, the cannabis industry provides about 9,200 jobs across the country and is adding $8.26 billion to the economy.

Cannabis legalization has opened the gates for serious scientific studies. Rigorous research can now be done on the health benefits of cannabis, giving a clear idea on how it can be safely used to help a variety of medical conditions.

Challenges Faced by the Legal Cannabis Industry

While cannabis continues to have great economic potential, in some ways it has underperformed during the last year. Just a few months before legalization, Deloitte predicted that legal pot sales would be as high as $4.34 billion in 2019. However, the reality was much more modest as the country rang up $524 million in legal sales in the first seven months of the year.

Supply shortages certainly hurt sales and were cited as reasons why major population centres such as Ontario, British Columbia and Quebec have been slow in opening brick-and-mortar cannabis stores. Even online sales had trouble at first with delivery delays.

Ontario’s slow pace of store openings and its lottery system also stand in contrast to the western provinces of Manitoba, Saskatchewan and Alberta, which have had a much smoother rollout. Ontario stores have since outpaced other provinces on a monthly sales basis.

On the legal front, the black and grey markets for cannabis persist, as they are benefiting from the higher prices and supply shortages afflicting the legal industry.

But Cannabis 2.0 Is on the Way

Overall the situation is looking up as more retail stores open, supply shortages are diminishing, and the black market is shrinking in the face of more people using legal cannabis.

The biggest boost to the industry may come exactly one year after legalization, on October 17, 2019, with “Cannabis 2.0—legalizing a variety of “derivative cannabis products,” including cannabis edibles, infused beverages, extracts, topicals, vaping products and others.

The new products are expected to grow the cannabis economy significantly, expanding merchants’ inventories, appealing to many consumers who are looking for other form factors for their consumption.

“The edibles market alone is estimated to be worth at least $1.6 billion a year in Canada, with cannabis-infused beverages adding a further $529 million,” says Jennifer Lee, a partner and Deloitte Canada's Cannabis National Leader, and Consumer Advisory and Analytics Practice National Leader. She points out that much of this economic bump will be on top of current cannabis product spending.

While the new cannabis derivatives will be legalized this month, we won’t see them appearing on retail shelves until mid-December at the earliest, and most probably later, because all the proposed products have to go through a two-month review process before being approved for sale.

When they are, the second industry wave begins, and Canada remains a leader in the global cannabis economy.

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