Canadian Marijuana Industry Snapshot: 17 Charts

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2 Canadian Marijuana Industry Snapshot: 17 Charts Welcome to the first edition of the Canadian Marijuana Industry & Market Snapshot Report, produced by the research team at Marijuana Business Daily. In many ways, Canada s marijuana industry is setting the standard for the rest of the world. The country s decision to legalize medical marijuana at the federal level created a thriving and competitive market filled with large, sophisticated players that are expanding internationally at a rapid clip. And now Canada is poised to become the first G7 nation to legalize recreational cannabis. The swift pace at which Canada s marijuana sector is advancing has drawn the attention of investors, entrepreneurs and policymakers from the United States and abroad, many of whom may be unfamiliar with the unique dynamics of these burgeoning new industries. In this report, you ll find 17 key charts designed to provide a snapshot of Canada s marijuana industry and its potential going forward. These charts provide a glimpse into: How Canada s medical market and the companies operating within it have progressed over time. Business opportunities in the country s soon-to-be established rec market. The current size of the medical cannabis market and estimates for the future. Differences in the Canadian versus U.S. marijuana markets. The majority of data in this report comes from Canadian governmental entities primarily Health Canada and the Office of the Parliamentary Budget Officer. Because marijuana is legal at the federal level and many cannabis businesses in the country are publicly traded, the amount and quality of data about Canada s marijuana industry are much higher than in the United States. The writing of Matt Lamers, a Toronto-based reporter at Marijuana Business Daily who covers the Canadian marijuana industry exclusively, also deserves recognition as his work provided the basis for much of the analysis in this report. If you have any suggestions or want to provide feedback, please contact me at elim@mjbizdaily.com. Best regards, Eli McVey Marijuana Business Daily Analyst 1

3 Canadian Marijuana Industry Snapshot: 17 Charts Current Situation Canada effectively legalized medical marijuana in 2001, though the original bill was replaced by the Marijuana for Medical Purposes Regulations (MMPR) in This new legislation authorized the production of MMJ through federally licensed producers, which supply medical cannabis to patients throughout the country via a mail-order system. As of mid-november, 74 production licenses have been issued throughout Canada. Chart 1.01: Number Of MMJ Production Licenses By Province Number Of MMJ Produc on Licenses By Province Saskatchewan 4 British Columbia 17 Alberta 4 Manitoba 2 Quebec 2 Newfoundland and Labrador 0 Ontario 41 New Brunswick 2 Prince Edward Island 1 Nova Scotia 1 Source: Health Canada 2

4 Marijuana Business Daily Not all of Canada s licensed producers are permitted to sell MMJ, however. After a producer is approved to begin cultivating marijuana, the company must pass a series of tests and inspections before any product can be shipped to patients. On average, it has taken 12 to 18 months for producers to receive licenses to sell. Thousands of businesses have submitted applications to produce MMJ in Canada, the vast majority of which have been refused, withdrawn or were incomplete. As of mid-november, over 400 companies were waiting for Health Canada (the country s health department) to review their applications, though just a small percentage are likely to move forward in the process. Chart 1.02: Marijuana Production Licenses By Type Marijuana Produc on Licenses By Type Sale Only 4 Cultivation & Sale 32 Cultivation Only 38 Sale Only 4 Cultivation & Sale 32 Pending Applications 428 Source: Health Canada 3

5 Canadian Marijuana Industry Snapshot: 17 Charts In the United States where marijuana is illegal in the eyes of the federal government each state operates its own cannabis industry. In Canada, however, medical marijuana is legal at the federal level, and the government has left production in the hands of a relatively small number of companies. Canada also requires each MMJ producer to be vertically integrated, meaning the company grows its own cannabis, manufactures its own extracts and handles all aspects of sales in-house. Some medical marijuana markets in the United States also mandate vertical integration, but most states license businesses across the entire supply chain. Though dispensaries are currently illegal in Canada, they do exist. Most operate in major cities such as Toronto and Vancouver, where officials have not prioritized enforcement of the law unless there are complaints. Chart 1.03: Number Of Plant-Touching Marijuana Businesses In Canada Compared To The United States Number Of Plant-Touching Marijuana Businesses In Canada Compared To The United States Country Business Type Medical Dispensaries/Rec Stores (estimated) 3,300-4,300 United States Wholesale Cultivators (estimated) 2,500-3,500 Infused Product Manufacturers (estimated) 1,600-2,000 Canada Licensed Producers Illegal Dispensaries (estimated) ,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 Number Of Businesses Note: Estimated number of businesses operating in the United States includes both medical and recreational companies as of April Figures regarding licensed Canadian businesses were gathered in mid-november Estimates for the number of illegal dispensaries in Canada were released in April Source: Marijuana Business Daily Factbook 2017, Health Canada, Canadian Association of Medical Cannabis Dispensaries 4

6 Marijuana Business Daily The number of MMJ patients in Canada has boomed over the last several quarters, corresponding with the rise of large, federally licensed marijuana producers in the country. Some observers believe that patients are taking advantage of the liberal list of qualifying MMJ conditions to legally acquire cannabis for recreational purposes. Others, however, attribute the rise in patients to increased awareness of the potential medicinal uses of marijuana among both the general public and physicians. In reality, it s likely a mix of both factors. Chart 1.04: Total Number Of Registered MMJ Patients In Canada Total Number Of Registered MMJ Patients In Canada Patients % Change From Previous Quarter 250K 60% Patients 200K 150K 100K 75,166 98, , ,754 53,649 50K 39,668 30,537 23,930 12,409 15,545 18,512 7,914 0K Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Source: Health Canada 201,398 50% 40% 30% 20% 10% 0% % Change From Previous Quarter 5

7 Canadian Marijuana Industry Snapshot: 17 Charts The increase in patients has fueled a sharp rise in sales. The medical market is expected to generate approximately $250 million by the end of 2017, representing a 65% increase over 2016 MMJ sales. While the total dollar value of the market is impressive, the rapid growth is driving enthusiasm among Canadian MMJ businesses and investors. Chart 1.05: Estimated Retail Value Of Canadian Medical Marijuana Market Estimated Retail Value Of Canadian Medical Marijuana Market $300M $250M $250M Estimated Value $200M $150M $100M $139M $50M $0M $12M $46M Note: 2017 sales estimates are projections based on MMJ patient growth in the first two quarters of All values in USD. Source: Marijuana Business Daily 6

8 Marijuana Business Daily In July 2015, Canadian MMJ producers were given the green light to begin producing marijuana extracts, which are sold to patients in the form of cannabis oil. Much like in the United States, extracts have gained traction in Canada s medical market. Patients treating severe and chronic conditions typically need larger, easily ingestible doses of THC to provide symptom relief which has helped fuel overall sales growth. Chart 1.06: Amount Of Dried Marijuana & Oil Sold To Patients 14K Amount Of Dried Marijuana & Oil Sold To Patients Amount Dried MJ Sold (kg) Amount Oil Sold (kg) 12K Kilograms Sold 10K 8K 5,134 6K 4,773 4K 4,037 5,673 6,194 2K 3,082 4,109 0K 1,371 1,873 2,481 2, ,500 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Source: Health Canada 5,836 5,896 7

9 Canadian Marijuana Industry Snapshot: 17 Charts Since cannabis oil was introduced to the market in the first quarter of 2016, the rate of sales growth has outpaced that of dried marijuana in every quarter. Cannabis oil now accounts for about half of all marijuana sales in the country, where it appears to have stabilized. Chart 1.07: Percentage Of MMJ Sales From Dried Marijuana Percentage Of MMJ Sales From Dried Marijuana 100% 100% 100% 100% 100% 100% 100% 100% 84% % Sales From Dried MJ 80% 60% 40% 73% 66% 56% 51% 49% 20% 0% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Source: Health Canada 8

10 Marijuana Business Daily A limited number of MMJ producers in Canada, combined with rising patient counts and growing MMJ sales, have enabled the country s licensed marijuana companies to grow much larger than their U.S. counterparts. Due to the federally illegal nature of marijuana in the United States, the country s largest publicly traded businesses that focus specifically on the marijuana industry Terra Tech Corp. and Kush Bottles are not able to work with cannabis in as straightforward a manner as Canadian marijuana companies. Kush Bottles does not actually touch the plant, while Terra Tech is a holding company for several plant-touching subsidiaries. Though these companies are allowed to trade on over-the-counter markets, their overall value is limited relative to public marijuana companies in Canada. Chart 1.08: Sampling Of Publically Traded Marijuana Company Market Caps: Canada Compared To The United States Sampling Of Publically Traded Marijuana Company Market Caps: Canada Compared To The United States Canadian MJ Companies U.S. MJ Companies Canopy Growth Corporation $2,921,100,000 Aurora Cannabis $2,403,960,000 Terra Tech $188,346,000 Kush Bottles $179,116,000 $0.0B $0.5B $1.0B $1.5B $2.0B $2.5B $3.0B $3.5B Note: All values in USD, current as of 11/24/17. Source: Yahoo Finance 9

11 Canadian Marijuana Industry Snapshot: 17 Charts Because MMJ is legal at the federal level in Canada, marijuana producers are allowed to export cannabis products and establish large operations in other countries that have also legalized marijuana. Cannabis businesses in the United States, however, operate regardless of the federal government and are not even permitted to ship product across state lines. That s given Canadian MMJ producers a major opportunity to establish a presence in emerging international markets, and several companies have taken significant steps to do so. Chart 1.09: Sampling Of Canadian Marijuana Company International Activity Sampling Of Canadian Marijuana Company International Activity Toronto-based Cronos Group took its first step overseas through its wholly owned subsidiary Peace Naturals Project by exporting medical marijuana to Germany in October Saskatoon-based CanniMed marked its first shipment of commercial cannabis oil to Australia with the sale of 3,600 milliliters of oil to Health House International, a medical cannabis wholesaler in Perth. British Columbia-based Tilray plans to spend $20 million to build a medical marijuana production facility in Portugal to serve the European Union. The new facility is slated to begin operation in 2018 and is expected to ultimately produce 55,116 pounds of MMJ by Burlington, Ontario-based Maricann Group established a subsidiary in Germany called Maricann GmbH and raised $42 million to further expand production there. 10

12 Marijuana Business Daily Exports of MMJ from Canada were nonexistent just a couple of years ago but now represent a considerable growth opportunity for licensed producers. Based on year-to-date totals, Canadian MMJ producers are on pace to export approximately 255 kilograms (562 pounds) of dried marijuana and cannabis oil in 2017, which would represent a 75% increase over Chart 1.10: Canadian Marijuana Exports: YTD Canadian Marijuana Exports: YTD Cannabis Oil 2016 Dried Cannabis 2017 Marijuana Exported From Canada (kg) through 7/20/17 Source: Health Canada 11

13 Canadian Marijuana Industry Snapshot: 17 Charts Preparing For Recreational Sales In April 2017, Canada s government introduced legislation in the House of Commons to legalize recreational marijuana, proposing that existing licensed medical cannabis producers get first crack at business licenses and setting July 1, 2018, as the target date for legalization. Canada is leaving it up to each province to determine key regulations that will have a major effect on cannabis businesses, including where marijuana can be purchased and consumed, how it is taxed and who can sell it. As of mid-november, New Brunswick, Ontario, Quebec, Manitoba, Alberta and Newfoundland have unveiled models for how recreational marijuana will be sold - offering a glance at the direction policymakers in several provinces are heading. Chart 1.11: Preliminary Status Of Recreational Marijuana Regulations By Province Preliminary Status Of Recreational Marijuana Regulations By Province British Columbia Retail Structure: Likely to allow private retailers Legal Age of Consumption: TBD Alberta Retail Structure: Plans to allow private retailers Legal Age of Consumption: 18 Manitoba Retail Structure: Plans to allow private retailers Legal Age of Consumption: TBD Quebec Retail Structure: Government-run Legal Age of Consumption: 18 Newfoundland & Labrador Retail Structure: Plans to allow private retailers Legal Age of Consumption: TBD Saskatchewan Retail Structure: May allow private retailers Legal Age of Consumption: TBD Ontario Retail Structure: Government-run Legal Age of Consumption: 19 Source: Marijuana Business Daily New Brunswick Retail Structure: Government-run Legal Age of Consumption: 19 Nova Scotia Retail Structure: TBD Legal Age of Consumption: TBD Prince Edward Island Retail Structure: Likely government-run Legal Age of Consumption: TBD 12

14 Marijuana Business Daily How big will the rec market be? Canada s Parliamentary Budget Office estimates the number of cannabis users aged 15 or older in the country at 3.6 million to 7 million by 2021, with a midpoint estimate of 5.2 million. While these figures include both recreational and medical users and it s unlikely that any Canadian province will allow customers younger than 18 to purchase adult-use cannabis the ranges provide a general idea of the potential size of the consumer base several years after rec sales begin. Note that cannabis users can differ considerably in their consumption habits, which will ultimately affect the market and business opportunities. Chart 1.12: Estimated Number Of Cannabis Users In Canada In 2021: Breakdown By Frequency Of Use Estimated Number Of Cannabis Users In Canada In 2021: Breakdown By Frequency Of Use Percentage Of Users Less Than Once A Month 36% One To Three Times A Month 17% At Least Once A Week 26% Daily 14% Once Per Year 0.06% Percentage Of Consumption At Least Once A Week 26% Daily 72% One To Three Times A Month 2% Source: Canada's Office of the Parliamentary Budget Officer 13

15 Canadian Marijuana Industry Snapshot: 17 Charts The retail value of Canada s rec market is hard to pin down, as the rules and regulations governing the new industry have yet to be finalized. However, a rough approximation of potential domestic sales can be formed using the number of estimated cannabis users in the country and their corresponding consumption rates provided in the previous chart along with a series of assumptions regarding the development of Canada s rec market: The number of cannabis users aged 18 or older in the country by 2021 will be between 3.4 million and 6.7 million. Recreational cannabis will be sold initially for $8 per gram. Based on pricing trends in Colorado s rec market, this will fall to $6.25 by Assuming Canada s black-market prices fall at a similar rate as legal marijuana prices, approximately 80% of all marijuana consumption will take place in the legal market. 95% of all legal marijuana users will purchase from the recreational market. Set to be the first major country to legalize the sale of recreational marijuana, Canada will likely draw a significant number of international tourists looking to partake legally. But purchasing marijuana in another country may prove more onerous than simply crossing into another state with adult-use sales, making it difficult to predict how much an impact this will have on the size of the market. However, even conservative estimates suggest tourist spending on recreational marijuana will be in the hundreds of millions of dollars. Chart 1.13: Estimated Sales Of Recreational Marijuana In Canada To Domestic Users In 2021 Estimated Sales Of Recreational Marijuana In Canada To Domestic Users In 2021 $5.0B $4.5B Estimated Rec Sales $4.0B $3.0B $2.0B $2.3B $3.3B $1.0B $0.0B Low-End Estimate Middle Estimate High-End Estimate Note: All values in USD. Source: Marijuana Business Daily 14

16 Marijuana Business Daily But with rec sales slated to begin in summer 2018, Canadian marijuana producers likely won t be prepared to meet initial demand. Since MMJ sales began, the addressable market for licensed producers has been limited strictly to registered patients an extremely small number relative to the amount of potential rec customers in the country. Assuming rec sales begin on time, at least in some areas, Canada s rec market is expected to experience a supply shortage until more production capacity comes online. Chart 1.14: Canadian Marijuana Production & Estimated Future Demand Canadian Marijuana Production & Estimated Future Demand Estimated Current Licensed Annual Marijuana Production 90,000 kg Estimated Cannabis Consumption In ,000 kg Source: Canada's Office of the Parliamentary Budget Officer 15

17 Canadian Marijuana Industry Snapshot: 17 Charts In anticipation of a supply shortage, licensed producers continue to bolster their inventories ahead of adult-use sales. The growth in the amount of dried marijuana and cannabis oil in producers inventories from the January-March period in 2017 to the April-June period was the largest quarter-over-quarter increase in more than two years. Chart 1.15: Amount Of Marijuana In Licensed Producers Inventories At End Of Month 35K Amount Of Marijuana In Licensed Producers' Inventories At End Of Month Cannabis Oil (kg) Dried Marijuana (kg) Kilograms In Producers' Inventories 30K 25K 20K 15K 10K 13,246 11,788 10,695 5K 9,729 7,312 4,667 5,445 6,713 1,134 5,198 0K 2,021 2,994 2,038 3,330 3,724 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Source: Health Canada 18,087 18,140 25,077 16

18 Marijuana Business Daily Regulators have also taken notice, revamping and streamlining the application process and dedicating more resources to licensing additional processors ahead of rec legalization. Chart 1.16: Number Of Marijuana Producer Licenses Issued By Quarter Number Of Marijuana Producer Licenses Issued By Quarter New Producer Licenses Issued Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Source: Health Canada

19 Canadian Marijuana Industry Snapshot: 17 Charts But despite the short-term volatility expected in the rec market, investors are largely bullish on the future for the country s entire marijuana industry. The funding windfall comes as Canadian cannabis companies are preparing to boost supply in response to the planned start of recreational sales next summer, the nation s booming medical marijuana market and overseas demand for their products. Chart 1.17: Investments In Canadian Marijuana Companies Investments In Canadian Marijuana Companies 1st Half 2016 $43M 1st Half 2017 $770M Total Capital Raised (USD) Source: Viridian Capital Advisors 18