Will Cannabis 2.0 Revitalize the Canadian Cannabis Industry?

Published February 14, 2020

We've already written about Canada's cannabis recession and how that has been impacting consumers and licensed producers. Will Cannabis 2.0 be enough to tip the scales for legal cannabis and spur industry growth?

What is Cannabis 2.0?

When cannabis was initially legalized in Canada in 2018, only specific formats were allowed for sale through legal channels. These included dried flower, pre-rolled joints, oil, and capsules. These formats are sometimes referred to as "Cannabis 1.0". Other formats were no longer illegal to possess, but were not yet available for sale legally.

"Cannabis 2.0" includes edible gummies and chocolate, edible baked goods, cannabis-infused beverages, single-use vape pens, vaporizer cartridges, and topicals. These products became legal for sale on October 17, 2019, although it was mid-December 2019 before the new products were available in stores. As we noted in our analysis of the Canadian cannabis recession, Cannabis 2.0 formats were available on the black market long before they were available legally.

How popular are Cannabis 2.0 formats?

Dried cannabis can be consumed in many different ways, so the top consumption formats are often much different than the top purchase formats. Joints (hand-rolled and pre-rolled) have been the most popular consumption format by far in Canada since legalization. Other dried flower formats like pipes and bongs are the next most popular. Right now, edibles and vapes each represent less than 10% of total consumption. However, Cannabis 2.0 products have not been widely available in the legal market. What could consumption look like after a few years?

Colorado, Washington, and Oregon have been selling legal recreational cannabis for at least 6 years. These states provide a great basis for comparison to predict what the cannabis industry in Canada could be like 5-10 years from now. Cannabis 2.0 formats are popular for producers in these states because of excess production capacity for dried flower and higher margins on edibles and concentrates. However, consumption formats in Colorado, Washington, and Oregon are largely similar to those seen in Canada. Dried flower formats are still the most popular by far, with pipes and bongs taking a higher share of consumption in the US than joints. Edibles and vapes are consumed more often in legal US states than in Canada. However, the increase in consumption is less than 50% on an already small base.

This graph shows survey respondents' most recent cannabis consumption format from October 2018 to January 2020. Source: Cannatrack data, n=18,764

Are new formats likely to grow the market?

We've seen above that edibles, drinkables, and vapes are slightly more popular in legal US states than in Canada. If Cannabis 2.0 formats are likely to grow the market, we would expect the cannabis consumption rate to be higher in areas where these formats are more popular. However, the incidence rate in Canada is essentially the same as the rate in Colorado, Washington, and Oregon. Legalization and widespread availability of Cannabis 2.0 formats has done nothing to grow the market in those legal states. Because of this, we don't expect legal availability of edibles and vapes to bring new consumers into the Canadian cannabis market.

This graph shows the rate of respondents who report ever consuming cannabis, by quarter from October 17, 2018 to January 31, 2020.

Source: Cannatrack data, n=51,378

So now what do I do?

As we mentioned in our post on the Canadian cannabis recession, there are a number of ways that the legal cannabis market can grow. Contact us to find out more about available Cannatrack data and custom research projects.

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