While about 10% of Canadians are cannabis “connoisseurs” who partake daily, another 12% (about three million people) could join the market following the introduction of new formats like edibles later this year.
Those are among the findings of a new white paper from Lift & Co and EY titled As 2.0 opportunities emerge, can you still compete with 1.0 strategies? It is based on interviews with 3,000 Canadians, including cannabis consumers, non-consumers and budtenders (which it describes as one of the “key influencers” in the purchase journey).
There is currently little to no brand loyalty among users in the fledgling legal market, with users citing potency and price among their chief purchase considerations. Nearly three-quarters (70%) of current consumers who purchase through physical retail locations say they do not know what product or brand they are going to purchase when they enter the store.
Non-users, meanwhile, cite a lack of good information as a reason for not trying cannabis, although many express a willingness to experiment with low-dose edibles.
“New product offerings will open the doors for experimentation among current and non-consumers, giving cannabis companies the opportunity to capture a larger market share,” said Monica Chadha, EY Canada’s Cannabis Leader, in a release. “But companies should keep in mind that these consumer segments will have very different attitudes towards cannabis and product formats, ultimately driving the need for differentiated customer experiences.”
The authors found low levels of awareness and literacy among non-consumers, with 33% indicating they don’t know enough about cannabis to consider consumption. They also reported antipathy towards cannabis based on the consumption method (most notably smoking) and potential short and long-term health effects.
The Cannabis Act allows only brand preference and educational promotion, although the report notes that licence holders and retail staff aren’t able to educate consumers about the intended effects of specific products.
“Instead, a noticeable trend is renaming genetics and cultivars to recommended occasions in which consumers may want to consume a specific product without promoting effects,” the report notes. “Examples include associative social nights out, running errands, getting ready for bed or completing a specific task.”
One of the key challenges for cannabis companies, the report authors say, will be capturing and analyzing data in order to better anticipate changing consumer preferences and needs, particularly as the sector matures.
“They will need to find a way to successfully introduce new products with limited data, create compliant but compelling content to engage with consumers and potential new consumers, and introduce new features and products to achieve sustainable market share and market acceptance,” wrote the paper’s authors.
The report says that the inability of the legal cannabis market to match the prices of the illicit market could be a challenge it will never overcome. Consumers are “very price sensitive” to the average price of the illicit and legal markets, it says.
The report quoted data from Statistics Canada’s Cannabis Stats Hub, which found that the average price per gram for non-medical cannabis from licensed sources is $10.65, compared to $5.93 from unlicensed sources.
The paper says that approximately 10% of the adult population is comprised of “versatile connoisseurs” who consume cannabis daily, spending up to $320 per month. The vast majority of this group (83%) self-identify as connoisseurs.
Their biggest barrier to purchasing legal cannabis for this group is price, with 22% stating that it is too expensive compared to the black market. This group has a high level of awareness of cannabis products, and indicated that quality (96%), potency (85%), intended effects (84%) and price (76%) are the most important purchase criteria when evaluating purchases.
While versatile connoisseurs purchase cannabis from legal online stores (34%) and legal brick and mortar cannabis stores (32%), 19% are currently purchasing from an illegal online store, 12% from an illegal brick and mortar dispensary, 21% from friends, and 23% from a private dealer.
The second largest consumption group, “social enjoyers,” comprise an estimated 4% of the Canadian population and consume cannabis one to three times per week, spending an average of $130 per month. Among social enjoyers purchasing through brick and mortar retail, 39% indicated that they don’t know what they are going to purchase prior to entering the store.
While interest in trying cannabis-infused beverages is high, the paper says that sales volumes will still be low. About 40% of current consumers indicated that they will try cannabis-infused beverages once they become legal if they can provide the effects they’re seeking.
More than half (51%) of non-consumers indicated that they would be somewhat (40%) or very likely (11%) to try cannabis-infused beverages. While the entrance of beverage alcohol companies into the cannabis category has led to it being identified as a potentially “explosive” product category, the report notes that cannabis-infused beverages account for less than 10% of the total market in U.S. states where cannabis is legal.
“Even though there might be a large percentage who will consume this product, licence holders have to be cognizant of limitations on the place of consumption,” the report notes. “Without the ability to legally consume in bars or restaurants, individual purchases will be limited to either online or licensed retail stores. In addition, the existing stores will need to consider refrigeration, storage and allocated space within their footprint to maintain profitability.”
