Legal Cannabis Outsells Ontario Illicit Market for First Time

Sales of legal cannabis outpaced the illicit market in Ontario for the first time ever during the second quarter of this year, according to new data from the province’s only licensed online cannabis retailer. 

“Ontarians chose to purchase more than half of their cannabis through legal channels, as Ontario’s legal market share increased to 54.2 percent, up from 47.1 percent the previous quarter,” the Ontario Cannabis Store (OCS), which is also the province’s sole licensed cannabis wholesaler, wrote in its latest quarterly report.

The figure is based on data collected by Statistics Canada from cannabis consumers, who may have a tendency to under-report purchases from unlicensed sources. But Jennawae McLean, the co-founder of Kingston, Ontario cannabis dispensary chain Calyx + Trichomes, said that the number is not inconceivable.

“When it comes to the unregulated market, (sales) are a difficult number to pinpoint, but assuming the reporting is true, it’s not hard to believe,” said McLean. “The number of stores in Ontario has grown exponentially over the last… two years. It’s really just completely exploded.”

The number of licensed cannabis retailers in Ontario has spiked to 1,115 over the past several months. At this time last year, there were only 183 legal dispensaries in the province and only 53 were in operation two years ago.

Licensed cannabis sales by licensed retailers totaled nearly 394 million Canadian dollars ($306.7 million) between July and September of this year, compared to CA$204.3 million during the same period the year before. A record 56 million grams of licensed cannabis across all product types were sold during the quarter. The vast majority of sales, 96 percent, were recorded by brick-and-mortar dispensaries, with online sales making up the difference.

Legal Cannabis Market Share Growing Rapidly

When licensed cannabis sales began in Canada in 2018, licensed retailers accounted for only about 5.4 percent of the total recreational cannabis market in Ontario. By the end of 2019 licensed retailers’ share of the market had risen to 19 percent, and by the end of 2020, it totaled 44.1 percent. Sales of regulated cannabis in Ontario, Canada’s most populous province, were the nation’s highest, according to the report.

“Ontario continued to sell more legal cannabis than any other province or territory, with nearly 39 percent of all legal cannabis sales in Canada occurring through the province’s licensed retailers and online store,” the report noted. “A record 56 million grams of cannabis across all product categories was sold this quarter with sales reaching nearly $394M, resulting in a 28 percent increase in sales compared to the first quarter of the fiscal year.”

McLean credited the regulated cannabis industry’s success in Ontario in part to the large selection offered by retailers compared to the illicit market. More than 1,800 different licensed products were available in the province during the second quarter, including nearly 400 that had been recently added by OCS. Dried flower, vapes and pre-rolls were the most popular product types.

“Yesterday I was working at one of my stores and I had this guy come in, and he was overwhelmed with the size of our menu, which, to be fair, is 27 pages long,” McLean told The Canadian Press. “He had no idea where to even start and he said that was because since he started smoking cannabis, he got it from a guy and didn’t know what it was or what was available.”

Lori Hatcher, the head of marketing for Truss Beverage Co., a joint venture between brewer Molson Coors Canada and cannabis company Hexo Corp., said that cannabis beverages also helped drive cannabis sales through legal channels in Ontario. 

“This is a category that doesn’t really exist in illicit, so it was really important to actually help bring those consumers into the legal market,” Hatcher said.