After a sharp period of growth, legal cannabis sales are levelling off in Ontario, province-by-province sales numbers show.
And without regulatory reform, the legal cannabis market may have reached its natural final size, experts say.
Ontario's numbers show a slightly different trend than other high-population provinces, where sales started to flatten earlier, in early 2021, as shown in the chart below. A yearly trend of December highs and February lows are expected, experts explain; they connect it to an uptick in holiday-related cannabis sales.
Ontario, where cannabis retail stores were slower to roll out than elsewhere in the country, saw a similar flattening, but about a year later, in early 2022. The province's monthly cannabis revenues have floated between $140 million and $160 million since March of 2022, with one exception.
It's also worth noting that the flattening of total sales has come as dry flower prices have fallen, so the data is compatible with at least some level of rising consumption.
Legal cannabis, like concrete, pineapples or anything else, must eventually have a more or less stable market size. Is that the ceiling the industry has hit?
"I think with no change in regulation, we're probably getting closer in Ontario and probably most of the other provinces," says cannabis industry lawyer Matt Maurer.
The market is held back by strict rules on sales and promotion, which make it nearly impossible to interest customers in new products, he points out. Unlike alcohol, legal cannabis products are nearly unavailable outside licensed stores.
"There is opportunity that still is untapped," he says. "You can't buy a cannabis beverage or a cannabis product in a restaurant, you can't buy it in a hotel, you can't buy it in a bar. You can't buy a cannabis beverage, you can buy a beer, wine, hard liquor, all those great things. You can't buy an edible, you can't buy a preroll."
Mississauga's decision to allow cannabis stores will cause a one-time uptick in sales when stores open there, he says.
Another possible source of growth is what, depending on your politics, ends up being called the "legacy market" or "illicit market."
Large numbers of retail stores and falling prices for legal dry flower have made it easier recently for the legal market to compete with its illicit rival. According to the most recent survey data available, 71 per cent of Canadian cannabis users said they bought their cannabis from a legal source — 61 per cent from stores, and another 10 per cent online — a number that had risen 7 per cent in a year.
"I think that the legal industry hasn't fully managed to convert all the consumers from the illicit market," says cannabis industry consultant Deepak Anand (a different person from the Ontario MPP of the same name)."I don't think it's realistic that we would in a few short years post-legalization, but certainly, there is that section of the market that still can be captured as well."
"We are starting to move in the direction where people are starting to learn more about cannabis and its benefits as well as kind of switching from legacy to legal because, you know, consumers are seeing a safe test regulated product in their hands."
The Canadian Cannabis Survey data, however, raises questions about how much of an illegal market is still out there to be absorbed. While 71 per cent bought their cannabis legally, only about 4 per cent say they bought theirs from a clearly illegal source. The remainder obtained theirs in informal ways that could well be legal, such as home grows or gifts from friends.
For Maurer, the root of the issue is in the philosophical basis of legalization, which was designed to crush the black market and regulate cannabis production and supply, not to make (much) money for either government or the private sector.
"If you really do want this industry to sort of succeed — and I know that's not the goal, the goal of legalization wasn't to create an industry and make it profitable — but if you do want to make it succeed, I do think you can change those promotion rules, change the things, you're allowed to say change how you can advertise, while still respecting sort of the core principles, which is public health and keeping children safe and all those things."