{"id":8579,"date":"2018-05-08T16:48:32","date_gmt":"2018-05-08T20:48:32","guid":{"rendered":"http:\/\/business.financialpost.com\/?p=1587827"},"modified":"2018-05-08T16:48:32","modified_gmt":"2018-05-08T20:48:32","slug":"cannabis-sales-to-top-hard-liquor-by-2020-but-there-will-be-many-losers","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2018\/05\/08\/cannabis-sales-to-top-hard-liquor-by-2020-but-there-will-be-many-losers\/","title":{"rendered":"Cannabis sales to top hard liquor by 2020, but there will be \u2018many losers\u2019"},"content":{"rendered":"

Cannabis sales could soon eclipse hard liquor sales in Canada, according to a new report by The Canadian Imperial Bank of Commerce analysts, with provincial governments, rather than private companies, expected to reap the most benefit. <\/span><\/p>\n

Legal recreational marijuana sales could hit $6.5 billion by 2020, topping the $5.1 billion Canadians spent on spirits in 2017 and approaching $7 billion spent on wine, according to the report released Tuesday. <\/span><\/p>\n

\u201cThe bulk of the value generated from this industry will accrue to Canada\u2019s provinces. In fact, we estimate that provinces will generate over $3 billion of income, either in the form of earned profits or taxation revenues,\u201d the CIBC analysts John Zamparo, Prakash Gowd and Mark Petrie wrote in the report titled, Cannabis: Almost Showtime.<\/span><\/p>\n

\u201cThe provinces will hold all the cards when it comes to distribution\u2026 In fact, we estimate that provincial governments will capture a stunning 70 per cent of industry profits.\u201d<\/span><\/p>\n

In contrast, private companies \u201c<\/span>will generate nearly $1 billion in EBITDA (earnings before interest, taxes, depreciation and amortization),\u201d the authors estimate, \u201cas part of the shadow economy becomes legitimate business.\u201d<\/span><\/p>\n

The calculations are based on the assumption that Canadians will be buying roughly 800,000 kilograms of legal recreational marijuana by 2020 at a price of around $8 per gram (or $10 a gram at the counter once you add excise and sales tax). <\/span><\/p>\n

That\u2019s up from roughly 773,000 kilograms that Statistics Canada estimates was sold on the black market in 2017, and assumes that the legal market will be able to capture the lion\u2019s share of consumers within a short period of time. <\/span><\/p>\n

Keeping retail prices relatively low is key in the process of transition, the analysts write. <\/span><\/p>\n

\u201cRetailers who think $20\/gram cannabis is attainable will quickly find consumers walking out of their stores, pulling out their phones, and DM-ing their previous dealer to see if they can still get that deal on Bruce Banner at $8\/gram,\u201d CIBC analysts said.
\n<\/span><\/p>\n

The prospect of an $8 gram doesn\u2019t, however, mean licensed producers will be achieving massive markups on their product which they can grow at well under $2 a gram. <\/span><\/p>\n

\u201cAs a starting point, investors should assume that any value added to distribution (also thought of as wholesaling) of the product will be within the government sector,\u201d the analysts write.<\/span><\/p>\n