Over the past year, COVID-19 has had an interesting effect on the legal cannabis industry in Canada. Whereas most businesses floundered across other industries, cannabis businesses flourished. In Canada, provinces noted brick and mortar retail stores as essential services during the quarantine, and private retailers supplied the healthy appetites of cannabis consumers on a local level. If we look at mid-2020, we’ll see some strong indicators for cannabis’ continued economic success in Canada as well as over the border in the US, but we also see how oversaturation will lead to much-needed competition. Is this initial boost related to staying home with quarantine lockdowns, increased appetites for more solitary recreational experiences, a more accessible retail market, or just an industry boost overall? And why is this initial boost now turning down?
What the data shows
Taking a closer look at the average sales of cannabis, we can see ebbs and flows across the industry. In general, there were some solid boosts in average sales spend across the stores we track, which is especially noticeable at the start of the quarantine lockdown across Canada — keeping in mind that then there were far fewer licensed cannabis retail stores. In order to give a more accurate number of sales, considering 90% of cannabis sales in Ontario at least is bought at private retailers, we are only showing brick and mortar private retailers we track in the graph below.
At the end of 2020, Canada had a total of 1400+ licensed retail stores in Canada, with a national average of $200K in monthly sales per store according to Cannabis Retailer. At CannStandard, we track about half of these stores’ sales, and have similar findings at peak, as seen below.
Are Average Sales by Store Growing?
As we can see, cannabis sales definitely peaked in the early days of the pandemic. The considerable boost in sales velocity can possibly be attributed to the COVID-19 lockdown, as StatsCan noted an increase in consumption throughout the quarantine. It can also be attributed to the kickstart of Ontario’s cannabis retail system, with under 100 stores last June rising up to 420+ as of February 2021, and intention to license 100+ a month to get through the licensee backlog. Below you can see a video showcasing the average sales by store with the adjoining graph showing the percent difference from the previous month.
Keeping in mind that this percent change does have to do with the amount of licensed stores opening up on the market across Canada, there is something else rather important that we can distill from this: the more stores, the more diluted the profits. See a breakdown of the sales by store as compared to the stores count below. Will this drop in sales average trajectory keep on the same track, and where will it plateau?
More stores means less sales per store
If we look at the amount of stores tracked, back in July when CannStandard was tracking just under 160 stores, the % difference month over month in sales was close to 30%. Now, with more than triple the amount of stores tracked, we’ve dropped to -33% average sales growth. In order to get an even better look at the sales data, we zero in on the last 6 months:
All that we see here is that, essentially, more stores equal less sales per store. We know that sales are decreasing overall and stores continue to be licensed, so this isn’t surprising. The real question is whether the current trajectory will foster healthy competition and ensure the best products and stores do best, as we ride out the third wave of lockdown across Canada. What do you think? Let us know in the comments below!