Edible cannabis will become legal in Canada in October, introducing a category that will attract new cannabis consumers and generate about $2.7 billion in revenue, according to a new Deloitte study.
“Our report shows a whole new customer is going to come to the market with edibles. They were deterred from the market because they didn’t smoke,” said Jennifer Lee, a partner and Deloitte Canada’s Cannabis National Leader.
About 11% of Canadians currently consume cannabis edibles, and another 13% are expected to start buying edibles once they are legalized. The findings are based on survey of 2,000 Canadians conducted in late February and early March, and the report, Nurturing new growth: Canada gets ready for cannabis 2.0, was released Monday.
Deloitte projects edibles (cookies, gummies, brownies and chocolates) to represent about $1.6 billion of the $2.7 billion market, while beverages will represent $529 million, topicals $174 million, concentrates $140 million, tinctures $116 million and capsules $114 million. Gummies is the preferred edible format for 26% of current edibles customers, followed by cookies (23%), brownies (22%), and chocolates (16%). Among likely consumers, cookies is the first choice (50%), followed by brownies (49%), with chocolates and gummies tied for third (48%).
With edibles added to the smokable market, Deloitte estimates Canada’s total cannabis market to reach almost $10 billion. According to Statistics Canada, for the fiscal year ending March 2017 beer sales totalled $9.1 billion and wine sales totalled $7.2 billion.
Deloitte concluded that growing cannabis usage is likely to erode alcohol sales in Canada in the years ahead. About 37% of current users and likely users said they would use edibles as an alternative to alcohol. “If you look at the usage occasions, they map very closely to alcohol: help you relax or sleep, improve mood, reduce stress and anxiety, have fun with your friends,” said Lee. “I don’t believe that consumers will spend on both over time.”
That revenue opportunity—which has led established alcohol businesses to move into cannabis—will likely mean traditional packaged foods companies make similar moves, said Lee.
“I think you will see CPG companies come in. The challenge is when do they come in? At what stage? And what degree of risk are they willing to take on?” she said. “If a prominent consumer packaged goods brand finds out that in the supply chain it has illicit products, that will be unacceptable for the brand. So they’re looking at it very carefully.”
Early last month, Mondelez CEO Dirk Van de Put told CNBC his company was “getting ready” for cannabis products—cannabis Oreos were unlikely, he said, but it could be added to other existing products or new lines. And just last week Ben & Jerry’s said it was working on CBD-infused ice cream in the U.S. (Ben & Jerry’s told The Message it has no immediate plans to introduce CBD ice cream in Canada.)
“I think everything’s on the table,” said Lee of the potential for big food brands to get into cannabis. “We have to solve for taste profiles and dosage. After you solve for those two you can put it anything you want.”
While Ottawa still hasn’t released its final regulations for edible cannabis in Canada, the same stringent rules applied to smokable cannabis are expected to apply. Cannabis marketers have expressed frustration about those limitations, but Lee said there are other ways to build brands beyond traditional marketing and advertising. “There’s a lot of doom and gloom about marketing, but there’s ways to be insightful about the consumer that don’t require necessarily big brand marketing,” she said.
Marketers can develop direct relationships with cannabis users based on consumer insights and preferences derived from data. It’s that last piece of the puzzle that is vexing cannabis marketers at the moment. By layering on data—both first party and external sources—“you can piece together what’s happening in the market and with consumers,” said Lee. “I think that marketers will need to be highly adept in analytics to do well in this industry. More so probably than any other industry.”
While Oct. 17 is still expected to be the official date of edible legalization in Canada, Deloitte expects it will take a while for product to roll out to consumers. “It’s not going to be suddenly you wake up Oct. 18 and there’s a bunch of edibles on the shelf,” said Lee. “It’s going to be a slower rollout. That’s why we believe this is an industry where you need to have patience and persistence, but those who do will actually do quite well.”