What Will The Cannabis Market Look Like in Ontario?

Article by Liam Kelly and Karl Meilke, Policy Opinions

What will the cannabis market look like in Ontario? Français (French) irpp HOT TOPICS SPECIAL FEATURES PODCASTS VIDEOS ABOUT IRPP Ontario is heading into uncharted economic waters with cannabis legalization. The experience in Colorado may hold some clues as to what lies ahead. PRINT ARTICLE Liam Kelly, Karl Meilke

Cannabis is moving from the back alley to Main Street, and this will have profound implications for Ontario’s economy. The fact that the sale and purchase of recreational cannabis has been illegal before now complicates our ability to estimate demand, prices and government revenues from legalization. Still, we can look at other jurisdictions to estimate the future size of Ontario’s cannabis industry, and it’s not too early to assess the regulatory and market structure proposed by the Ford government.

Hints from Colorado

We took a look at population data from Ontario, as well as population and cannabis sales data from Colorado, which legalized medical cannabis in 2000 and recreational cannabis in 2014. While the specific regulations and legalization processes differ between Ontario and Colorado, the two jurisdictions do share a number of demographic, political and social characteristics that support our comparison:

  • Colorado was one of the earliest US states to legalize medical marijuana, one year before Canada passed similar legislation.
  • Ontario (14.0 million) has a much larger population than Colorado (5.5 million), but they have similar age profiles, with approximately 64 percent of their populations between the ages of 18 and 64.
  • Ontario and Colorado have similar policies with respect to homegrown marijuana, allowing four and six plants per household, respectively.
  • Colorado is relatively liberal in urban areas, voting in favour of Hillary Clinton over Donald Trump in the 2016 presidential election, but is more conservative in rural areas. This mirrors the general political tendencies in Ontario at the time legalization.

Both Ontario and Colorado are dominated by one large metropolitan area, but the overall population density of Colorado is about 50 percent higher than Ontario’s. The province’s lower concentration of residents coupled with its sheer geographic size (it is four times larger than Colorado) suggests Ontario will need many more legal cannabis outlets than Colorado. As of January 2018, Colorado had 509 recreational dispensaries and 505 medical dispensaries. If Ontario does not have enough stores, online sales will have to fill the gap.

So what happened to cannabis sales in Colorado after legalization in January 2014? Figure 1 shows monthly cannabis sales in Colorado from February 2014 through June 2018. Legal sales of recreational cannabis began around US$30 million a month but grew quickly to a peak of over US$100 million per month in April 2018, where sales seem to be levelling off. Interestingly, sales of medical cannabis have remained around US$30 to $40 million a month and don’t seem to have been affected by legal recreational cannabis sales.

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