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A society in transition,

an industry ready to bloom


2018 cannabis report
Table of contents
The cannabis era dawns 1

Canada’s new growth industry 4

Canadian consumers: demographics and behaviours 8

Channel and purchase preferences 14

Implications and considerations 24

A society in transition, an industry poised for growth 28


A society in transition | The cannabis era dawns

The cannabis era dawns

T
he world is watching as Canada steps into the spotlight as the first
G7 country1 to legalize recreational cannabis nationwide. This year,
cannabis will become legal at the federal, provincial/territorial, and
local levels. Public officials are balancing health, safety, and revenue as they
strive to undermine the illegal market, ensure a safe and controlled supply,
and keep cannabis out of children’s hands.

If successful, Canada will win global acclaim and set an example for other
nations. The federal government’s push for legalization has already had a
powerful effect, sparking a wave of innovation and entrepreneurship that
shares the fast-growing, can-do spirit of our technology sector.

What will the legal market look like? How will public officials balance health,
safety, and revenue priorities? And who’s going to be buying? To shed
some light on the subject, Deloitte surveyed current and likely recreational
cannabis consumers across the country in early 2018 to gain insights into
how consumption levels may change, what kinds of products consumers
would be interested in, and how and where they’d like to purchase—in
short, what consumer demand means for the cannabis market.

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A society in transition | The cannabis era dawns

High product quality The market is significant Majority of recreational cannabis


The total cannabis market in Canada, sold will be legal
and integrity as well as including medical and illegal as well as Canadians who are already consuming
a range of competitive legal recreational products, is expected cannabis expect to buy nearly
to generate up to $7.17 billion in total two-thirds of their products from legal
price points will be sales in 2019. Legal sales are expected retailers once they can. High product
needed to persuade to contribute more than half of this quality and integrity (as affirmed by
total—up to $4.34 billion—in the first quality testing) as well as a range of
current consumers to year. Current and likely consumers competitive price points will be needed
move their purchases expect to pay slightly more for legal to persuade current consumers to
products, with the former saying they’re move their purchases over to legal
over to legal sources.
willing to pay 10 percent more. sources. Delivering a superior customer
experience will be of vital importance.

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A society in transition | The cannabis era dawns

Tomorrow’s consumers Customers demand privacy,


Today’s typical cannabis consumer security when purchasing
is what we might describe as a risk Approximately one-third of recreational
taker. Perhaps not surprisingly, they’re cannabis consumers indicate an
more likely to be young (aged 18-34), interest in buying products online
and in their quest to live life to the through approved retailers’ websites,
fullest, they’re more likely to put their and they worry about the privacy and
health or safety at risk. They often security of their personal information.
consume cannabis several times a Even in-store consumers will be sharing
week. Legalization is expected to attract personal information with retailers,
more of a conservative experimenter— such as allowing their ID to be scanned
typically one who is aged 35-54, at point-of-sale terminals and their
has a university or graduate school image captured on security cameras. The legalization of
education, and has family or other The fact that governments are recreational cannabis marks
responsibilities. They’re expected to involved in cannabis retail means that a significant transition for
consume less than once a month. That consumers expect their information Canadian society but while
said, likely consumers are far from to be protected, especially online. the industry is controversial,
neophytes: 74 percent of them have Online retailers will need to ensure they we also need to remember
had prior experience with recreational embed privacy-by-design principles2 that this category has spurred
cannabis, and 41 percent have used it and invest in robust e-commerce innovation, entrepreneurship,
in the past five years. cybersecurity measures. and jobs. What is certain is that
legalization will open the doors
Consumers will buy more Will cannabis be a complement to a dynamic, sophisticated
frequently—and spend more for liquor—or a substitute? industry that will create new
After legalization, current frequent Many liquor boards across Canada jobs, new opportunities for
cannabis consumers expect to buy will be playing a prominent role as businesses, and new revenues
more often than they do today. Current distributors and retailers. They may for government. And executed
but less frequent consumers also soon discover such sales are affecting well, legalization will also help
expect to purchase products more their traditional lines of business, shift a considerable proportion
often, and spend significantly more because our survey suggests that of cannabis consumption to
when they do—up to 68 percent more. cannabis may serve a larger role as a legal channels in the years
substitute for beer, spirits, and wine. to come.
Bricks-and-mortar matters All alcohol categories are expected
Current and likely cannabis consumers to be affected, which could have a
expect to purchase the majority of their negative impact on the revenues for
products at physical retail locations. government, liquor companies,
Knowledgeable staff and clearly and retailers.
displayed prices will play a critical role
in the success of cannabis retailers’
bricks-and-mortar stores, further
driving home the point that retailing
fundamentals such as convenience,
customer experience, product choice,
and product and location safety matter
as much to these retailers as those in
more traditional segments.

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A society in transition | Canada’s new growth industry

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A society in transition | Canada’s new growth industry

Canada’s new
growth industry
A sizable market awaits

The total cannabis market in Canada, including Overall consumption through legal channels
medical, illegal, and legal recreational products, is expected to rise by up to 35 percent, as
is expected to generate up to $7.17 billion in likely new consumers offset the proportion
sales in 2019—up to $4.34 billion of which of current ones who elect not to transition to
will come from the legal recreational market. legal channels. The cannabis spend overall
Medical cannabis is anticipated to generate an is also expected to rise by up to 58 percent,
additional $0.77 billion to $1.79 billion in sales, owing primarily to the fact that prices for legal
with the illegal market bringing in a further products will be higher.
$0.51 billion to $1.04 billion.

Recreational cannabis: market size


Difference
$1.34–2.75 billion
Canada $470–1,590 million
$1.81–4.34 billion

$0.42–0.87 billion
West $150–500 million
$0.57–1.37 billion

$0.52–1.06 billion
Ontario $180–620 million
$0.70–1.68 billion

$0.31–.64 billion
Quebec $30–110 million
$0.42–1.00 billion

Atlantic $0.09–0.18 billion


$0.12–0.29 billion $110–360 million

Estimated current size Projected legal market size

Source: Deloitte analysis

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A society in transition | Canada’s new growth industry

Legal cannabis market

Proportion of cannabis
products likely to be purchased
through legal channels

Eliminating the
illegal market is one
of the objectives
of legalization.

63% 66% 65% 47% 55%


Canada West Ontario Quebec Atlantic

Majority of purchases will Current cannabis consumers who say


shift to legal channels they’ll transition all of their purchases
Eliminating the illegal market is one to legal channels are more likely to
of the objectives of legalization. It’s be men with at least a university or
encouraging, therefore, to note that graduate school education and an
current cannabis consumers are annual income over $50,000. Current
expected to move nearly two-thirds consumers who don’t intend to buy any
(63 percent) of their purchases to legal cannabis through legal channels are
channels, whether through bricks-and- more likely to be aged 55 or older, and
mortar retailers or online channels. have a high school education or less.
Quebec consumers are rather less
likely to do so, however; only 47 percent
plan to shift to legal avenues. It’s
notable that less frequent consumers
are much more likely to buy through
legal retailers (69 percent) than are
daily consumers (37 percent).

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A society in transition | Canada’s new growth industry

Consumers willing to pay a In Ontario, for example, consumers


premium—up to a point who today pay an average of $8.33
According to our survey, Canada’s per gram are willing to pay up to $9.33
current average price for illegal per gram—12 percent more—for
cannabis is $8.24 per gram. It’s legal product. In contrast, Quebec
noteworthy that no matter the consumers, who today pay the lowest
province, survey respondents say average price in the country ($7.53 per
they’re willing to pay more for products gram), are only willing to pay up to
grown and processed under the federal $7.81 per gram for legal products.
government’s new regulatory regime That’s just 3.7 percent per gram higher.
and sold through legal channels. In
fact, a majority (55 percent) of current
consumers expect to pay more after
legalization. How much more they’re
willing to shell out, however, varies
depending on where they live and their
current consumption habits.

Price upon legalization

Canada West Ontario Quebec Atlantic


Current average price $8.24 $8.36 $8.33 $7.53 $8.17
per gram (illegal market)

Price users are willing $8.98 $8.89 $9.33 $7.81 $9.04


to pay after legalization

Price difference increase $0.74 $0.53 $1.00 $0.28 $0.87


(% difference) (9.0%) (6.3%) (12.0%) (3.7%) (10.6%)

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A society in transition | Canadian consumers: demographics and behaviours

Canadian consumers:
demographics
and behaviours
Who’s going to be buying when cannabis is legal?

O
ur research indicates that But legalization is bringing in an
tomorrow’s likely cannabis older consumer. This consumer is
consumer will be somewhat more of a conservative experimenter—
different from today’s. This provides typically middle-aged, with a university
some clues as to what the post- or graduate school education. They
legalization environment will look like. don’t tend to put their personal
interests before family needs or other
Today’s consumer is what we describe responsibilities. They’re unlikely to
as a risk taker. They’re young, typically have a big social network. And they’re
with a high school or college education. more likely to consume less than
In their quest to live life to the fullest, once a month.
they’re more likely to put their health
or safety at risk, even going so far as to That said, probable consumers
skirt or break the law. And they often aren’t neophytes: 74 percent of
consume several times a week. them have had prior experience with
recreational cannabis, and 41 percent
have consumed it in the past five
years. Legalization may provide some
Canadians with the opportunity to
occasionally return to their younger
days—legally.

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A society in transition | Canadian consumers: demographics and behaviours

The current and likely user

More likely to be More likely to be


between the ages of 18-34 between the ages of 35-54

More likely to More likely to


consume multiple consume less than
times a week once a month

The risk taker The conservative


experimenter
More likely to have a More likely to have a
maximum education of maximum education of
high school or college university or graduate school

The current recreational The likely cannabis user


cannabis user (following legalization)

More likely to Less likely to be an


deviate from the online influencer and
letter of the law have a large social network

More likely to take Less likely to prioritize


health and safety risks personal interests ahead
to enjoy life and have of family interests
a fuller experience

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A society in transition | Canadian consumers: demographics and behaviours

What drives consumption? Socializing also drives the consumption


Amid all the discussion over legalization, of current consumers. Fifty-eight
it’s easy to overlook an important percent say they indulge to have fun
question: Why do people want to with friends, while 25 percent of those
consume cannabis in the first place? aged 18 to 34 say they use cannabis
What need or needs does it address? to connect with others. More than half
(57 percent) have it with a small group
Nearly half (48 percent) Roughly two-thirds of the current of friends; slightly more (59 percent)
of cannabis consumers recreational consumers who responded consume at home alone, however.
to our survey say they use cannabis
overall—and 69 percent
to help them relax, sleep, or reduce Nearly half (48 percent) of consumers
of daily consumers— stress and anxiety. Women are more overall—and 69 percent of daily
likely to consume for these reasons; consumers—say they use cannabis to
say they use cannabis
74 percent say they use it for relaxation improve their mood. More than a third
to improve their mood. or sleep, compared to 59 percent of of daily consumers (35 percent) report
men, and 69 percent do so for stress or doing so to help with their thinking
anxiety relief, versus 55 percent of men. or concentration.
Thirty-five percent of current women
consumers report using cannabis for
medical reasons such as acute pain
relief, while 24 percent of men report
using it for this reason.

Reasons for using recreational cannabis

To help relax or sleep 66%

To reduce stress or anxiety 62%

To have fun with friends 58%

To improve mood 48%

As an alternative to alcohol 41%

To make activities more interesting 34%


For specific medical reasons
29%
such as acute pain relief, etc.
To increase creativity or expressiveness 26%

To heighten senses 25%

To improve sex life 19%

To help connect with others 18%

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A society in transition | Canadian consumers: demographics and behaviours

Retailers that are able to secure the supply chain, only 16 percent say a familiar brand
would play a part in persuading
protect and analyze customer data, and promote public them to completely move to legal
health and safety will be well positioned to achieve a cannabis outlets.

competitive advantage. Over time, as retailers develop a better


understanding of their customers’
What will draw current them to move away from the illegal needs and behaviours, improve their
consumers to legal channels? market. Quebec respondents aren’t customer experience and engagement
Legalization alone won’t persuade as concerned about price—perhaps programs, and fine-tune their products’
most current cannabis consumers because prices in their province are quality and integrity, we could expect
to completely abandon their existing already Canada’s lowest—but they to see an increasing share of cannabis
suppliers. But our research suggests are interested in safety: 41 percent sales transition to legal sources.
the right mix of quality, price, and safety feel offering products that are Retailers that are able to secure the
could just do the trick. certified as safe to use is just as supply chain, protect and analyze
important as providing better-quality customer data, and promote public
More than half of current consumers products overall. health and safety will be well positioned
who don’t plan to purchase all their to achieve a competitive advantage.
cannabis through legal channels say While quality, price, and safety
that offering better-quality products are important criteria for current
and a range of price points suited to consumers, brand names don’t
every budget would be needed for appear to have the same impact:

Reasons to transition to legal purchase channels

Better-quality products 55%

A range of price points for every budget 54%

Products that offer a range of potency 47%


A range of products that target specific 44%
effects on the body
Products that are certified to be safe to use 41%

Non-combustible products like gel capsules 26%

Familiar brands 16%

Vaping products 15%

Other 6%

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A society in transition | Canadian consumers: demographics and behaviours

Expect more frequent According to our survey, purchases by We see a more significant change
purchases after legalization current and likely frequent cannabis in behaviour among less frequent
Producers and retailers, take consumers are set to rise up to consumers, both current and likely.
note: consumers of all types expect 22 percent after legalization, to just After legalization, purchase frequency in
to buy cannabis more often after over three times a month, although the this group is poised to rise 121 percent,
legalization, and less frequent overall amount spent each month is set with the average total spend rising
consumers expect to spend more. to remain relatively steady, hovering nearly 68 percent (to $27.87) roughly
This strongly suggests that cannabis around $99. Likely frequent consumers every three months. Current consumers
consumption will become a normalized appear ready to buy more often will likely buy products slightly more
activity more quickly than many might than those who are already frequent often and spend slightly more than
have anticipated. consumers (3.4 times per month versus probable future consumers.
2.9), but they’ll probably spend a little
less each month ($98.13 versus $99.15).

Purchasing behaviour: frequency and amount

Monthly Pre-legalization Post-legalization


Difference
figures (current) (current and likely))

Frequent users Average purchase


2.5 3.1 +22.30%
frequency

Average total spend $99.05 $98.88 -0.02%

Three-month Pre-legalization Post-legalization


Difference
figures (current) (current and likely))

Less frequent users Average purchase


0.6 1.3 +121.00%
frequency

Average total spend $16.61 $27.87 +67.80%

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A society in transition | Canadian consumers: demographics and behaviours

Don’t expect consumption say they’ll consume from one to


levels to change significantly six times per week, up slightly from
Canadians may purchase cannabis 33 percent today.
more often after legalization, but
it doesn’t seem they’ll indulge in it While legalization might not affect
all that often. Overall, 41 percent frequency, it does seem Canadians will
of all consumers—and 63 percent consume a bit more when they do: the
of probable ones—say they’ll use it average amount consumed during a
less than once a month. Even among single occasion is expected to rise
current consumers, legalization appears 11 percent, from 0.82g to 0.91g,
likely to drive only a slight increase: perhaps driven by the anticipated
20 percent say they’ll consume daily, popularity of edible products.
unchanged from today; 35 percent

Consumption behaviour: frequency of use

Pre-legalization
current users
20% 33% 24% 23%

Post-legalization
current users 20% 35% 27% 18%

Post-legalization
likely users 4% 14% 19% 63%

Daily 1-6 times


times per
perweek
week Once/twice
Once/twiceaamonth
month Less than
Less thanonce
oncea a
month
month

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A society in transition | Channel and purchase preferences

Channel and
purchase preferences
Customers will likely prefer to walk into a store to buy products

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A society in transition | Channel and purchase preferences

A
pproximately half of those buying online is understandable, given
surveyed say they’re interested the stigma that continues to surround
in purchasing from government cannabis consumption; this option
or licensed private retail stores. enables customers to maintain their
Consumers also expressed interest in privacy, thereby avoiding disclosure to
buying directly from licensed producers friends, family, neighbours, co-workers,
or manufacturers, but they will be employers, media, and others.
unable to do so. Our research also
indicates that almost half (47 percent) of Notably, current daily cannabis
all recreational products will be bought consumers are much more likely
from physical locations. to continue purchasing products on
the illegal market compared to less
Roughly a third of cannabis consumers frequent consumers (53 percent versus
are also interested in buying online 19 percent). Daily consumers today
from government retailers and licensed are also more likely to grow their own
private retailers (consumers won’t (53 percent, compared to 31 percent
be able to buy online from licensed of less frequent consumers). Those
producers or manufacturers, either). in Atlantic Canada are also keen
We estimate that 35 percent of products on growing their own: 44 percent
will be purchased through these online say they’d do so, compared to just
and mobile channels. The interest in 27 percent nationwide.

Preferred legal purchase channel

Licensed private retail store 51%

Government retail store 50%


Direct from a licensed producer/
manufacturer retail store 48%

Licensed producer/manufacturer website 33%

Licensed private retail website 30%


Government-operated website 28%

Grow your own 27%

Licensed producer/manufacturer mobile app 24%

Licensed private retail mobile app 21%

Physical Digital Other

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A society in transition | Channel and purchase preferences

Price and product variety will Product variety is also important. until a year after dried cannabis and
be key purchase drivers Sixty percent of current consumers oils make their legal debut, 58 percent
What will factor into purchasing and 49 percent of probable ones of likely consumers plan to purchase
decisions? For current and probable consider the range of available products and use edibles. While one in three
consumers alike, price is key: 75 percent (e.g., edibles, pre-rolls, oils) to be an (34 percent) current consumers say
of current consumers and 65 percent important purchasing criterion. Today, they’re likely to try new and different
of likely ones say they’ll be looking for 64 percent of consumers typically products, only one in five (20 percent)
products offered at reasonable prices. partake through rolled joints. While of probable future consumers say
edible products won’t be available they’ll do the same.

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A society in transition | Channel and purchase preferences

Likely consumers appear to be slightly Addressing their customers’ concerns


more interested in the safety and will require companies to implement
origin of the product. Fifty percent of secure supply chains to protect product
those surveyed say they’ll be looking quality and integrity. They will also need
for products that have been tested for to conduct third-party due diligence to
pesticides and other harmful materials, deter illegal or unethical practices, and
compared to 48 percent of current implement insider-threat programs to
customers. Respondents aged 55 prevent the infiltration of and influence
and older are especially concerned on the legal cannabis industry by
about this (62 percent), compared organized crime.
to their peers aged 54 and younger
(45 percent). As well, 55 percent of
probable future consumers want
to know their products come from
a reputable grower, compared to
47 percent of current ones.

Considerations for purchase decisions

75%
Offered at a price deemed reasonable
65%
Type of cannabis product 60%
(e.g. joint, edible) 49%

Available in preferred potencies 53%


40%

Tested for pesticides and other harmful materials 48%


50%

Product of a reputable grower 47%


55%

Available in preferred package sizes 46%


36%

New and different types of cannabis products 34%


20%
26%
Something that has been tried before
15%
19%
Available in a preferred package type
17%
15%
Familiar brand
16%

Current user Likely user

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A society in transition | Channel and purchase preferences

Edible products won’t be There’s a strong appetite Overall, we expect six out of 10 likely
for edibles cannabis customers will choose to
offered for at least a year The federal government intends to consume edible products. For current
after legalization, despite make only fresh or dried cannabis, consumers, edibles could comprise
limited oils (including capsules), plants, 18 percent of their overall intake after
an explosion of interest in and seeds available upon legalization. legalization, up from 14 percent today.
them in recent years. Edible products won’t be offered for
at least a year afterward, despite an
explosion of interest in them in recent
years. Nearly two-thirds (64 percent) of
current and likely consumers are aware
of cannabis-based baked goods, such
as brownies, and 51 percent say they’re
interested in trying them. Forty-three
percent are interested in sampling the
chocolate, while 37 percent say they’d
eat the hard-candy product.

Potential cannabis-based edible products

64%
Baked goods/cookies/brownies etc.
51%
35%
Chocolate 43%
45%
Hard candies, lollipops, or gummies
37%
28%
Beverages
31%
15%
Honey
25%
10%
Popsicles and freezies
24%
9%
Ice cream 23%
5%
Potato chips 22%
11%
Crackers/biscuits 20%

Olive oil 13%


19%

Have heard of product Interested in using product

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A society in transition | Section title goes here

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A society in transition | Channel and purchase preferences

Willing to pay more, What Canadians want from As well, cannabis consumers want retail
but still sensitive to price legal retailers stores to be located in a safe area,
Our research shows that cannabis Canadian consumers have high and also away from schools and other
consumers expect—and are willing— expectations, and their needs and child-oriented areas. For one in 10, this
to pay more after legalization. It’s also behaviours are constantly evolving. Like is the most important consideration.
clear that price is an important factor any other retailer, those selling cannabis It’s also a reminder that while cannabis
influencing purchasing decisions, will need to meet or exceed those will be legalized, it remains a valuable
especially for likely consumers. expectations and needs if they intend commodity with a strong illegal market.
to succeed. Retailers, producers, and other cannabis
Current consumers consistently show industry organizations will need to
they’re more willing to buy at all price By far, the most critical feature for ensure they prioritize security—both
points than likely consumers. The price cannabis stores is having staff with physical and cyber—and work closely
would have to reach nearly $14 or more strong product knowledge: 71 percent with police services and justice agencies
per gram for half of current consumers of current consumers and 69 percent to keep themselves, their customers,
to stop buying; for likely consumers, it of likely ones consider this a must-have, and society at large protected and safe.
would only need to reach roughly $11 while 24 percent overall say it’s the
or more per gram. Being responsive most important consideration. Stores
to consumers’ price sensitivities is will also want to have their prices
By far, the most critical
essential if producers, manufacturers, clearly and prominently displayed for all feature for cannabis stores
and retailers are to be successful—and products, which is a mandatory feature
is having staff with strong
if governments are going to persuade a for 70 percent of current consumers
rising number of Canadians to purchase and 69 percent of probable ones. product knowledge.
through legal retailers.
While cannabis stores will undoubtedly
We anticipate that it won’t take long prioritize cyber and physical security,
for the cannabis retail sector to mirror they will also need to ensure they
the evolution we’ve seen in other retail provide the positive, engaging shopping
sectors, splitting into discount and experience consumers expect and
premium segments to meet the needs demand of any modern retailer.
of very different consumer groups. Fifty-two percent of all customers
want to feel welcome upon entering
a store—this rises to 61 percent for
likely consumers—and 46 percent
overall want to be able to easily enter
and leave. For two-thirds (65 percent)
of the survey respondents, convenient
store hours are also important. This
is especially true for current daily
consumers, 83 percent of whom say
convenient hours are essential.

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A society in transition | Channel and purchase preferences

Shopping preferences in physical stores

Features deemed must-haves by survey respondents

24%
Store employees are knowledgeable about products 71%
69%
9%
Store is located in a safe area 56%
49%
8%
Clearly marked prices for all products 70%
69%
8%
Effective visible physical security and cybersecurity 48%
44%
6%
Retailer can be trusted with personal data 50%
39%
5%
Has convenient hours 65%
65%
4%
Made to feel welcome 55%
61%

Products are organized and grouped 4%


51%
in a way that makes it easy to shop 41%
3%
Store is clean and neat 68%
54%
2%
Easy to quickly get in and out 51%
37%
2%
Visibility and ease of finding items 48%
42%

Most important feature Current user Likely user


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A society in transition | Channel and purchase preferences

Free shipping, clear pricing, Like the rest of the retail industry, those Two-thirds of cannabis consumers also
and robust cybersecurity: selling cannabis will find that customers say clearly marked prices are a must-
vital for online sales have high expectations about how and have feature for prospective online
A sizable proportion of cannabis when they get their products. Two- retailers. More than half (58 percent)
consumers say they would prefer to thirds of cannabis consumers say free of respondents with a high school
buy online from licensed producers shipping is essential. They’d like speedy education or less want to see organized
or manufacturers (33 percent), delivery, too: 63 percent expect their product groupings as well, to smooth
licensed private retailers (30 percent), purchases to arrive within two days, and their shopping experience. Daily or
or government retailers (28 percent) 34 percent say they’d be willing to pay frequent consumers are more likely
after legalization—though it won’t a higher price for expedited delivery. (39 percent) to feel the availability of
be possible to order from producers Current consumers are more willing accessories—such as pipes, bongs, and
or manufacturers at the onset of (41 percent) to pay for faster delivery rolling papers—is necessary, compared
legalization. than likely consumers (27 percent); to those who consume less frequently
respondents aged 54 and younger are (26 percent).
twice as likely to pay more for expedited
delivery (38 percent) than those aged
55 and older. Online retailers may
find that getting pricing right will be a
delicate task.

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A society in transition | Channel and purchase preferences

But what consumers want most in data security and privacy isn’t
from online cannabis retailers is surprising, given numerous high-profile
privacy and data security. One in five cyber breaches in recent years and
(22 percent) say that mature, robust consumers’ understandable desire
data management, privacy protection, to keep their personal and financial
and cybersecurity for their e-commerce information secure. As well, cannabis
business is the most important feature, consumers are likely to want to ensure
while it’s a must-have for 52 percent their consumption isn’t made public
of current and 58 percent of likely because of the potential for personal,
consumers. This strong interest professional, or reputational damage.

Shopping preferences in e-commerce

Features deemed must-haves by survey respondents

Mature, robust data management, 22%


52%
privacy protection and cybersecurity
58%
16%
Free shipping 71%
63%
9%
Product offered by a trusted organization 38%
45%

Site provides detailed/advanced pictures 9%


50%
and descriptions of products 46%
6%
Wide assortment of products 54%
45%
5%
Clearly marked prices for all products 66%
63%
4%
Ease of searching/finding products 52%
53%
4%
Products are organized and grouped 47%
in a way that makes it easy to shop 44%
2%
Range of delivery options 45%
44%
2%
Real-time inventory or products 47%
36%
2%
Wide range of payment options 51%
43%

Most important feature Current user Likely user

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A society in transition | Implications and considerations

Implications and
considerations

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A society in transition | Implications and considerations

The federal and provincial/territorial governments are taking a


groundbreaking leadership role in making Canada the first G7 country
to legalize recreational cannabis nationally. It is a complex effort, and
the needs of diverse stakeholders must be delicately balanced. Public
safety—from a health, security, and justice perspective—is paramount,
of course. At the same time, there’s a strong desire to foster innovation
and entrepreneurship across the country and to show the world that a
well-regulated, well-run, highly professional cannabis industry can be a
positive contributor to a national economy.

For retailers, legalization represents And while the federal government, Governments at all levels will also need
new opportunities and challenges. through Health Canada, is committed to establish a strategy to encourage
Successful retailers will be those who to tracking legal recreational cannabis the cannabis industry to continue to
learn quickly from their counterparts “from seed to sale,” the plans to date do develop in a safe, healthy, secure, well-
in other retail sectors, who have not include the detailed analytics and regulated, and professional manner.
experienced a wrenching evolution in tracking that could provide the system In part, this will involve making a
recent years as power has shifted to with a springboard. Clarity on this issue determined effort to reduce the stigma
the consumer. is needed. surrounding cannabis consumption to
make those who consume—and those
For all involved in this budding It’s also clear that while federal and who don’t—more comfortable with the
industry, there will be lessons to learn, provincial governments have largely idea. Yet at the same time, they must
implications to comprehend, and many sorted out their respective roles do so without appearing to actually
issues to consider as we embark on the and responsibilities, municipalities encourage consumption itself.
first step of the legalization journey. aren’t nearly as ready. Cities are still
coming to grips with such matters as
Government plays a key role in whether to allow people to consume in
ensuring public safety public spaces, where to allow physical
Migrating the cannabis trade to legal storefronts to set up shop, how to deal
channels offers numerous advantages with cannabis lounges and cannabis-
to the country’s federal and provincial/ themed events, and whether justice
territorial governments: a regulated agencies have the tools and technology
industry, safer products, investments required to deal with public safety
in justice agencies, improvements in issues such as cannabis-impaired
public education and harm reduction, driving, illegal sales, illegal sales to
and a curb on illegal sales. It also means minors, and organized crime. We should
tax revenues. However, given that sales expect to encounter some bumps along
of cannabis are likely to cut into those of the road after legalization, and trust
beer, spirits, wine, and even tobacco, it’s that we will find solutions to them.
important that governments ascertain
the ultimate impact of legalization on
so-called sin tax revenues.

25
A society in transition | Implications and considerations

Retail fundamentals will still Our research—and our experience


apply: customer insight and data with traditional players—makes it clear
is critical that cannabis retailers must deliver an
Deloitte’s perspective is that to outstanding and secure experience
succeed, cannabis companies will need if they’re to thrive and, perhaps more
to execute today’s retail fundamentals important, to attract consumers away
Consistent experiences, just as effectively as those in more from illegal sources. Retailers who
and deep customer traditional sectors. Consistent and make an effort to develop a deep
engaging omnichannel experiences, understanding of their customers,
insights will play a vital and tailor the experience, products,
deep insights derived from customer
role in ensuring Canadian and retail network analytics, and practices, and prices they provide
effective security and product integrity accordingly, will be well positioned
cannabis retailers thrive.
will be key to ensuring they thrive. to succeed. As the industry matures,
As the cannabis industry matures retailers will undoubtedly want to
and stabilizes, customer experience differentiate themselves by moving into
will be of paramount importance. It’s discount or premium market segments
essential for governments and other and delivering unique, seamless
stakeholders to support these retailers, experiences in-store and online.
because they’re central to the effort to
eliminate the illegal trade over time. It’s likely retailers and consumers alike
will be somewhat baffled
Location, as always, matters. But by the wide range of products that will
retailers will need to be sensitive to be available. As we’ve seen, product
the fact that communities may not take assortment is important to consumers,
kindly to an inundation of cannabis and this will be especially true once
stores. Careful attention to customer edibles arrive on the scene. Retailers
segmentation and skilful exploitation will need to invest considerable effort
of consumer analytics can help the into deciding which stock keeping
companies optimize their units (SKUs) to bring in, which will
retail networks. undoubtedly be shaped by their
customers’ preferences.

26
A society in transition | Implications and considerations

Online channels will need to Security and justice It’s also important to note that
safeguard privacy and security considerations must not be governments at all levels—federal,
Cannabis retailers’ online channels will overlooked provincial/territorial, and municipal—
be an important source for consumers Cannabis is a valuable product will be developing, introducing, and
to research and discover products. with a well-established illegal market enacting legislation, regulations,
While many will buy from physical and sizable public health and safety and by-laws regarding the newly
locations, a substantial number of concerns. That means cannabis legalized market. These new rules will
people will choose to buy online for organizations at all levels—from help ensure that Canada’s licensed
the simple reason of privacy. Many regulators to licensed producers and producers, distributors, retailers, and
won’t want to run the risk of being seen retailers—face unique physical and other cannabis organizations do their
buying cannabis while doing so still has cybersecurity challenges, and all have a part to help proactively address issues
a trace of stigma about it. critical responsibility to protect the end related to crime, public safety, and
consumer and the public at large. community health. They will also ensure
This desire for privacy extends to the sector coordinates with relevant
online sales. Consumers want to be These new cannabis companies must justice agencies and complies with all
able to trust that their personal and adopt a multi-disciplinary, enterprise- applicable legislation and regulations.
financial information, from login wide approach to help identify, assess,
credentials to credit card numbers, and address the dynamic security risks
are kept very secure—and very they face. Those that take steps to
private. Online retailers will need to be implement a full security strategy stand
painstakingly clear about what data to improve their enterprise risk-
they collect and why, and how that management performance overall,
data will be stored, used, and shared. increase the organization’s value, instill
Cannabis consumers are especially public trust, and achieve an important
leery of having their data shared or sold competitive advantage.
in such a way that they end up being
characterized as a drug user, an unfair It’s vital that cannabis organizations adopt a
description for a person consuming a
legal, if controlled, substance. multi-disciplinary, enterprise-wide approach to
help identify, assess, and address the dynamic
Consumers are also concerned
about the potential for cybersecurity security risks they face in both the physical world
breaches. Given that hardly a week and the online domain.
goes by without yet another report of
such a breach, this worry is completely
understandable. Cybersecurity risk is
constantly evolving, and companies
all along the cannabis supply chain
will need to regularly update their
data management and cybersecurity
programs to ensure both client privacy
and corporate data protection.

27
A society in transition | An industry poised for growth

A society in transition, an
industry poised for growth
The legalization of recreational cannabis will mark an important change
in Canadian society. In time, we expect legalization will legitimize
consumption and diminish the stigma that surrounds it today. After
all, we’ve been here before—and we’ve shown that we have the
maturity to develop strong, thriving industries based on tightly
regulated, controlled substances such as beer, wine, and spirits. It
was not all that long ago that these were regarded in a vastly different
light. In our view, cannabis will prove little different. Recreational
consumption will eventually become normalized and mainstream,
eliciting about as much reaction as having a pint of craft beer.

28
A society in transition | An industry poised for growth

It can feel at times that Canada’s cannabis


industry is like the Wild West, with new players
seeming to emerge every day and the rules by
which the industry is meant to operate are not
entirely clear. Federal, provincial/territorial, and municipal
governments all play important roles in legalizing, securing,
and professionalizing the country’s cannabis industry.
We encourage organizations all along the supply chain to team
with government and respected advisors to strengthen the public
trust in a legal cannabis trade, paving the way for a successful new
industry in Canada.

29
A society in transition | Contacts and endnotes

Contacts
Jennifer Lee Tom Peters
Partner Partner
National Cannabis Sector Leader Insights and Analytics Leader
Consumer Advisory & Analytics Practice Leader Customer Advisory
jenniferlee@deloitte.ca tompeters@deloitte.ca

Mark Whitmore Andrea Ng


Partner and Vice-Chair Senior Manager
Global Leader Deloitte Private Cannabis Retail Lead
mwhitmore@deloitte.ca Retail and Customer Strategy
andreang@deloitte.ca
Rob Patridge
Government Transformation Leader John MacLeod
rpatridge@deloitte.com Senior Manager
Market and Consumer Research
Peter Sloly Customer Advisory
Partner jmacleod@deloitte.ca
National Security and Justice Lead
Risk Advisory Special thanks:
psloly@deloitte.ca Nicole van Warmerdam
Kris Hon

Endnotes
1 Uruguay was the first country in the world to legalize recreational cannabis, in July 2017.
https://www.nytimes.com/2017/07/19/world/americas/uruguay-legalizes-pot-marijuana.html

2 Privacy-by-design principles. https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/


risk/ca-en-ers-privacy-by-design-brochure.PDF

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A society in transition | Notes

Notes

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