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A YEAR IN REVIEWOntario’s first full year of legal cannabis operations

2019–2020

ABOUT THIS PUBLICATIONA Year in Review (2019-2020): Ontario’s first full year of legal cannabis operations has been published by the Ontario Cannabis Store (OCS) as a resource for the Ontario cannabis industry. This document is intended to provide a historical look at key facts and figures for the period between April 1, 2019, and March 31, 2020.

This publication marks the first comprehensive data report published by the OCS and going forward will be updated quarterly to support the development of the legal cannabis industry. This publication will evolve over time and feedback is welcomed to help the OCS improve the value of this report. Comments and feedback on this report can be submitted to [email protected].

DISCLAIMER: The OCS shall be the sole owner of all intellectual property rights and all right, title and interest in this publication, A Year in Review (2019-2020): Ontario’s first full year of legal cannabis operations, and any and all data used in it, and no use of the same shall be made, nor may ideas obtained therefrom be used except with written approval from the OCS.

Without limiting the generality of the above, no party, other than the OCS, shall be permitted to modify, publish, transmit, participate in the transfer or sale, create derivative works, or in any way exploit or use this publication, A Year in Review (2019-2020): Ontario’s first full year of legal cannabis operations, or any and all data used in it, in whole or in part without the prior written consent of the OCS.

This publication is intended for general guidance and information purposes only. Under no circumstances is this publication intended to be considered any form of financial reporting, or a recommendation to buy, sell or consume any of the products listed. The data provided are unaudited and have not been reconciled with official OCS data, and the OCS shall have no liability to any person resulting from the use of this publication.

A Year in Review (2019-2020): Ontario’s first full year of legal cannabis operations

Letter from Cal Bricker PRESIDENT AND CEO

I am happy to share with you our first cannabis data report. It reflects progress in growing the legal market, highlights consumer trends and tells a compelling story of the value consumers are finding in legal, regulated, tested cannabis purchased through OCS.ca and the 87 authorized retail stores operating across the province.

Making this data public and transparent, we believe, will drive greater effectiveness for the sector and increase trust from the public. We look forward to updating these numbers quarterly and sharing this report on an annual basis.

The numbers from our first full year of commercial operations show steady growth despite constrained supply that limited the ability of the Ontario marketplace to rapidly expand the number of access points as quickly as desired. For the first six months, it was necessary for OCS Wholesale operations to place caps on orders from our retail store partners in order to provide a fair and equitable distribution of available products.

Once product supply improved, the caps were removed and in December 2019, the provincial government announced it was moving from its temporary lottery system of awarding retail store licences to an open licensing process. In the fourth quarter of 2019–2020, the number of stores operating in Ontario began its rapid growth and Ontario’s first provincially licensed First Nations store opened its doors in Nipissing.

The number of products available in the marketplace also grew rapidly in the fourth quarter, with the introduction of Cannabis 2.0 (edible, concentrate, vape and topical) offerings. As with the launch of dried flower, supply from Licensed Producers was initially constrained in the face of consumer enthusiasm for the products, but throughout the quarter new offerings were consistently added to the OCS catalogue.

COVID-19’s impacts on the sector are still being felt, but the announcement that cannabis is considered an essential business was definitely a milestone; from prohibited to essential in less than two years. While growth forecasts for the 2020–2021 fiscal year are challenging given the current operating environment, I believe the legal cannabis marketplace will continue to demonstrate growth. Increased access points, a maturing product offering and an increasingly enthusiastic response from consumers bode well for Ontario.

Behind every number in this report are people who chose to purchase legal, regulated, tested cannabis. In our first full fiscal year of operations, Ontarians purchased more than 35 million grams of cannabis through the private retail network enabled through our wholesale business and OCS.ca. Increasing consumer choice and options is our goal and we believe sharing this data is an important step in building Canada’s largest, most dynamic legal cannabis marketplace.

Legal Cannabis Taking Root in Ontario

Our Data Program accounts for every cannabis product sale made through OCS.ca and through our authorized retail partners across Ontario. It is important to understand that when we talk about data, it is strictly limited to data regarding sales, not the personal data of individuals. We are focused on creating a Data Program to support the building of a modern industry that uses data to better serve the customer, enable more informed decision making and move customers away from the illegal market. The goal for OCS is to create a digital feedback loop, a data connection between consumers’ purchase decisions and Canada’s Licensed Producers, authorized retail stores and the public.

This data will inform investments, create opportunities and foster innovation. We are committed to supporting the cannabis industry by creating, consolidating and disseminating data-driven analytics and insights from Canada’s largest, most diverse marketplace.

Strategically provisioning cannabis sales data and using predictive and prescriptive analytics to identify market opportunities for suppliers and retailers will allow us to coordinate efforts against the illegal market.

Building a better understanding of consumers and their choices will lead to a vibrant, successful and healthy cannabis marketplace that fulfills consumers’ desires and the Government of Ontario’s goal of successfully tackling the illegal market while keeping cannabis out of the hands of youth.

Table of ContentsThe Big Picture 2

Total grams soldTotal sales in Ontario Number of retail stores Cumulative monthly retail cannabis sales across all provinces and territoriesItems listedOntario market share of illegal market Ontario share of national recreational sales

Sales Data 3Total sales and grams sold of product categoriesSales velocity by THC % Sales proportion by quarter, size and channel for dried flowerGrowth rate of pre-rolls by sizeSales for new product categories Top five brands per category based on sales

Pricing 6Average price per gram for dried flowerDried flower sales and sales velocity by price rangeAverage price per gram across cannabis subcategoriesIllegal market price for dried flower

Growing Access Points 8Average grams and sales per order on OCS.ca Average sales and grams sold by a store Growing number of retail stores Average distance of consumers to a retail store Number of stores by municipality Grams sold by region (West, North, GTA, Toronto, East) Unique visitors to OCS.ca Total number of transactions on OCS.caConversion rate on OCS.caPopulation served by express shippingNumber of OCS.ca visitors to OCS Learn content

Quality Assurance 11Total returns for the fiscal year Open and closed quality assurance investigations Number of product returns and quality assurance complaints Product recalls in Ontario

A Year in Review (2019-2020): Ontario’s first full year of legal cannabis operations 2

THE BIG PICTURETHE BIG PICTURETotal grams sold April 1, 2019, to March 31, 2020

35,100,000 g

Ontario share of Canada sales by quarter (% market share)

Ontario share of Canada growth per quarter (% contribution)

Ontario share of national recreational salesApril 1, 2019, to March 31, 2020Ontario market share of illegal market

OCS.ca

7,200,000 g

OCS.ca $71,400,000

Retail Stores

27,900,000 g

Retail Stores $313,700,000

Legal 19%

Illegal 81%

2019 Q4

5.4%2018 Q4

4.1%2019 Q1

12.5%2019 Q2

18.3%2019 Q3

Items listed

53

Total sales in Ontario April 1, 2019, to March 31, 2020

$385,100,000

Sales captured from the illegal market substantially improved over the first year of stores operating, and is expected to dramatically increase in 2020-21 with the open allocation of licensing. Note: Statistics Canada data is based on a calendar year. The OCS operates on a fiscal calendar year.

Product catalogue grew

by over 70% 906

1,138

1,301

1,567

Q1 Q2 Q3 Q4

Note: Rapid onboarding of new authorized retail stores through Ontario's open allocation began April 1, 2020, and will be captured in the next OCS data publication. On the date this report was issued, there were 87 stores operating.

Cumulative monthly retail cannabis sales across all provinces and territories

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec Jan

Mar

Feb

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

19,6

87 42,5

08 68,3

63 97,9

76 131,7

48 163,

534 196,

382

228,

001

261,6

87 298,

748

385,

287

336,

913

Number of retail stores

Source: Statistics Canada. Table 20-10-0008-01 Retail trade sales by province and territory (x 1,000)

Source: Statistics Canada. Table 20-10-0008-01 Retail trade sales by province and territory (x 1,000)Source: Statistics Canada; calculations by OCS

ON AB QC BC SK MB NS NB NL PEI YK NWT

Q1

Q2

Q3

Q4

0

10

20

30

40

50

6052%

27%

5%

34%

27% 27%24%

25%


OCS.ca Retail Stores

Beverages $110,0004,000 g

$300,00050,000 g

Capsules $3,500,000 210,000 g

$7,800,000400,000 g

Concentrates $130,00020,000 g

$170,00020,000 g

Dried Flower $47,300,0005,500,000 g

$227,600,00022,300,000 g

Edibles $800,000130,000 g

$3,000,000400,000 g

Oils $9,500,000890,000 g

$16,800,0001,500,000 g

Pre-Rolls $3,300,000270,000 g

$39,300,0002,900,000 g

Seeds $210,00020,000 g

$120,00010,000 g

Topicals $20,0001,000 g

$20,0001,000 g

Vapes $3,200,000120,000 g

$11,600,000400,000 g

SALES DATAIn its first full fiscal year of commercial operations, the OCS sold a total of approximately 35,100,000 grams of cannabis. Though the market was distorted by a lack of supply in the first two quarters of the year, some clear preferences and trends emerged. Cannabis consumers in Ontario chose dried flower products over other forms, with flower making up 79% of sales by volume. (Note that dried flower is the product that was predominantly available.) Of those dried flower products sold, 52% were in the “high” range over 20% THC.

When larger-format mids with consistent quality at lower price points became available in the fourth quarter, they demonstrated high sales velocity, indicating that this segment is clearly one to watch. At the other end of the scale, products at higher price points also moved quickly, showing that there is an appetite for higher-quality products.

Cannabis 2.0 products that launched into the market in Q4 sold very well, but similar to the launch of legalization, the offering from Licensed Producers was initially fairly narrow. The data demonstrates consumer enthusiasm, but it will likely take some time for identifiable trends to emerge.

Total sales and grams sold by product categories April 1, 2019, to March 31, 2020

Sales velocity by THC %April 1, 2019, to March 31, 2020

OCS.ca

Retail Stores

>20% 17% – 20%

12% – 16.99%

7% – 11.99%

2% – 6.99%

0% – 1.99%

Sale

s V

eloc

ity M

ultip

le

(2-6

.99%

= 1

.0)

THC %

12

10

8

6

4

2

0

3x

10.2x

1.6x

7.2x

1.4x

3.3x

1.4x2.7x

1x 1x2x

2.8x

Note: Sub-category sales do not add to total sales due to rounding.


Sales Data

Sales proportion by quarter, size and channel for dried flower April 1, 2019, to March 31, 2020


20

0

30

10

40

50

60

70

80

0.7% 0.9% 1%3%

0% 0%

1%

0.9%

65%

69%66% 68%

22%

15% 15%14%

11%13%

15%

13%

Q1 Q2 Q3 Q4

20

0

30

10

40

50

60

70

80

Q1 Q2 Q3 Q4

0% 0% 0%

1%

0% 0% 0% 0%

63%

70%68%

66%

34%

26% 28% 28%

3% 3% 4%13%

1 g 3.5 g 7 g 15 g 28 g

Growth rate of pre-rolls by size 0.35 g 0.4 g 0.5 g 1 g

20

0

30

10

40

50

60

70

0%0%

0%

56%

44%

0%

0%

59%

41%

0%0%

0%

48%

52%

0%0%

0%

49%

51%

2%

2%

51%

48%

4%

43%

53%

3%

36%

60%

3%

43%

52%

4%

42%

51%

4%

34%

61%

2%

33%

63%

3%

31%

65%

2% 2%3% 1%

Apr

201

9

May

201

9

June

201

9

July

201

9

Aug

201

9

Sept

201

9

Oct

201

9

Nov

201

9

Dec

201

9

Jan

2020

Feb

2020

Mar

202

0


Beverages Concentrates Edibles Topicals Vapes

Mar

202

0

$5k

0

$10k

$15k

$25k

$20k

$20,

900

$15,

200

Jan

2020

Feb

2020

Mar

202

0

$2M

$1M

0

$3M

$4M

$5M

$791

,300

$890

,800

$1,5

00,0

00

$3,7

89,5

00

$5,0

00,0

00

$2,8

55,10

0

Jan

2020

Feb

2020

Mar

202

0

$50k

0

$100k

$150k

$200k

$107

,500

$573

,200

$206

,400

$452

,400

$1,5

00,6

00

$915

,300

Feb

2020

Mar

202

0

$30k

$60k

0

$90k

$120k

$150k

$26,

100

$45,

100

$99,

200

$123

,300

Jan

2020

Feb

2020

Mar

202

0

$50k

0

$100k

$150k

$200k

$22,

300 $6

5,60

0

$19,

000 $6

3,10

0

$66,

800 $1

75,8

00

Sales for new product categories Q4 (Jan 5, 2020, to March 31, 2020) OCS.ca Retail Stores

Top five brands per category based on sales April 1, 2019, to March 31, 2020

Sales Data

OCS.ca Retail StoresBeverages CapsulesEverie 56% Tweed 50%Haven St. 44% Aurora 28%

Redecan 5%LBS 5%San Rafael ‘71 3%

Concentrates Dried FlowerCanna Farms 59% San Rafael ‘71 8%JWC 22% Aurora 8%Original Stash 19% Redecan 7%

Pure Sunfarms 6%Tweed 5%

Edibles OilsAurora Drift 27% Solei 24%Bhang 20% Redecan 17%Foray 18% Edison 10%Chowie Wowie 8% Tweed 10%San Rafael ‘71 8% Cove 9%

Pre-Rolls VapesFlowr 8% Redecan 14%Aurora 5% San Rafael ‘71 11%Solei 5% dosist 9%liiv 5% Kolab Project 8%Redecan 5% Canaca 7%

Topicals SeedsApothecanna 100% Tweed 100%

Beverages CapsulesHaven St. 52% Tweed 39%Everie 36% Aurora 22%Tweed 6% Redecan 17%Basecamp 5% San Rafael ‘71 6%

LBS 6%

Concentrates Dried FlowerCanna Farms 68% Aurora 8%Original Stash 27% San Rafael ‘71 8%JWC 5% Redecan 7%

Edison 7%Pure Sunfarms 6%

Edibles OilsAurora Drift 25% Solei 23%Foray 21% Redecan 21%Bhang 19% Edison 18%San Rafael ‘71 11% Cove 7%Tokyo Smoke 9% Tweed 6%

Pre-Rolls VapesAurora 12% Redecan 24%Tweed 8% San Rafael ‘71 12%RIFF 7% Trailblazer 8%Trailblazer 6% Kolab Project 7%Edison 5% Foray 6%

Topicals SeedsApothecanna 100% Tweed 100%


PRICINGIn response to market feedback that pricing was limiting success against an organized and persistent illegal market, the OCS refocused its commercial approach at the end of the fiscal year that, in part, aggressively addressed pricing by reducing the median dried flower price by 25%.

Combined with the real value of regulated and tested products, the new pricing structure will support increased adoption of legal cannabis. As forms such as vapes, edibles, concentrates and topicals become more widely available in the marketplace, the legal market offerings will be competing on price and innovation, with Licensed Producers offering accountability and safety to consumers, with every cannabis product traceable to its Certificate of Analysis. Health Canada’s oversight of the legal marketplace should prove a significant advantage over the illegal marketplace, as new products introduce a higher degree of complexity as compared to dried flower.

OCS Wholesale pricing to authorized retail stores is set at a fixed 25% markdown from OCS.ca prices before taxes to ensure a transparent and level playing field. Retailers are permitted to set their prices as they wish (and may reflect the in-store experience they offer consumers). The OCS fixed wholesale markdown was established to provide retail stores with reasonable margin levels to manage their operations consistent with other retail industries (including grocery, beverage alcohol, etc.). It also takes into account different retail environments across the province with varying commercial rents and labour costs.

In 2020-21, the average price difference between retail stores and OCS.ca is expected to come into further alignment with more competition among retail stores (with the open allocation of licensing) and new value-driven retailers that enter the marketplace.


Average price per gram across cannabis subcategories April 1, 2019, to March 31, 2020

Average price per gram for dried flowerApril 1, 2019, to March 31, 2020

Dried flower sales and sales velocity by price range April 1, 2019, to March 31, 2020

Dried Flower Pre-Rolls Capsules Oils

$8.56/g $12.17/g $17.21/g $10.73/g

$10.84/g $14.76/g $24.18/g $13.81/g

OCS.ca

OCS.ca

Retail Stores

Retail Stores

Q1

$ pe

r gra

m

Q2 Q3 Q40

2

4

6

8

10

12$9

.48

$10.

62

$9.3

9

$10.

64

$8.0

1 $10.

05

$7.4

8

$9.6

1

$5 - 84.9x

$8 - 123.5x

$12 - 152.5x

$15 - 191.5x

$19 - 231.0x

While consumers are drawn to lower priced products, there are opportunities at all price points as long as producers meet the expectations of consumers in that price range.

Illegal market price for dried flowerApril 1, 2019, to March 31, 2020

Pricing

$8.23*

$8.56**

$10.84**

OCS.ca

Retail Stores

Illegal Market

*Source: Weedmaps.com, unweighted**weighted by volume sold


GROWING ACCESS POINTSFrom the nine stores that opened their doors on the first day of the fiscal year to the 53 authorized retail stores operating at the end of it, growing Ontario’s retail store network is the top priority in the fight against the illegal market. Supply issues in the first half of the fiscal year constrained the volume of cannabis available and required the OCS to cap the amount and assortment to ensure fair allocation of popular products. In Q3, supply concerns abated and limits were removed for all but the most in-demand products. The province announced the open allocation of licensing in late Q3, and the first stores with licences granted in this new system came online in the first week of April 2020 (and will be reflected in the next publication). At publication of this report, there are 87 stores operating in Ontario.

The reach of OCS.ca also expanded with the introduction of courier delivery last year. Initially this express service was only available in the Toronto area, but by the end of the fiscal year, the service reached 37% of OCS.ca’s customer base.


3,100 g3,100 gAverage grams per day per store

Average sales and grams sold by a store April 1, 2019, to March 31, 2020

$25KAverage $ per day per store

9 gAverage grams and sales per order on OCS.ca April 1, 2019, to March 31, 2020

9 g$90.12

Average grams per order

Average $ per order (before tax)

Growing Access Points

Growing number retail stores April 1, 2019, to March 31, 2020

Q1 Q2 Q3 Q4

22 24 27 53

Toronto 12

Burlington 5

Ottawa 5

London 4

Kingston 2

Nepean 2

North Bay 2

Sudbury 2

Ajax 1

Ancaster 1

Barrie 1

Brampton 1

Cambridge 1

Collingwood 1

Dundas 1

Hamilton 1

Kitchener 1

Niagara Falls 1

Oshawa 1

Peterborough 1

Sault Ste. Marie 1

St. Catharines 1

Stoney Creek 1

Stouffville 1

Thunder Bay 1

Waterloo 1

Windsor 1

Number of stores by municipality

Num

ber o

f sto

re b

y R

egio

n

15

12

9

5

1214

1

12

9

6

3

0

East

Firs

t N

atio

ns

GTA

Nor

th

Toro

nto

Wes

t

Num

ber

of S

tore

s by

Mun

icip

ality

Average distance for consumers to a retail store April 1, 2019, to March 31, 2020

Number of Stores Population Weighted Distance (km)

60

50

Q1

46km 46km

41km

22km

53

28

2422

Q2 Q3 Q4

40

30

20

0

Num

ber o

f sto

res

and

dist

ance

(km

)

Grams sold by region April 1, 2019, to March 31, 2020

Region totals

By channel

East

GTA (Excludes Toronto)

North

Toronto

West

8,100,000 g / $65,600,000

8,000,000 g / $66,000,000

1,700,000 g / $15,200,000

8,400,000 g / $71,800,000

7,400,000 g / $63,100,000


1,500

,000

6,50

0,00

0

1,600

,000 6,

400,

000

700,

000

1,100

,000

1,600

,000

6,80

0,00

0

1,800

,000

5,60

0,00

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

East

GTA

(E

xclu

des

Toro

nto)

Nor

th

Toro

nto

Wes

t


Growing Access Points

Population served by express shipping

37%

Conversion rate on OCS.caApril 1, 2019, to March 31, 2020

7.52%Total number of transactions on OCS.caApril 1, 2019, to March 31, 2020

Q1 Q2 Q3 Q4

40,000

20,000

0

60,000

80,000

100,000

120,000

Apr

July

Oct

Jan

May

Aug

Nov Feb

June

Sept

Dec

Mar

74,

500

65,

100

59,

800

62,

600

59,

400

59,

300

59,

200

55,

600

58,

100

66,

900

62,

800

114

,400

Number of OCS.ca visitors to OCS Learn content

4,400,000Unique visitors to OCS.ca April 1, 2019, to March 31, 2020

4,400,000

Conversion rate is an important metric by which e-commerce businesses measure consumer demand on their platform. For every 100 customers on OCS.ca, 7.52 made a transaction.

Note: In early 2020-21, the OCS rapidly expanded express delivery to additional communities in Ontario to provide consumers with Direct-to-Door delivery during Covid-19. Updated numbers on coverage will be included in our next publication, but at the time of this report, 62% of OCS consumers were reached by this service.

216,700

Q1 Q2 Q3 Q4

201,600 193,700

403,400

Core to the mandate of the OCS is the promotion of social responsibility in conjunction with the sales of cannabis. OCS Learn content represents an important first step in social responsibility activities by the OCS that will be built upon in 2020-21.


TWOZERO

QUALITY ASSURANCEThe OCS Quality Assurance team ensures products introduced to the market follow Health Canada’s guidelines for packaging and labelling, and conducts investigations based on returns and consumer complaints. The top product complaints the OCS received were related to dryness, underweight products and potency range. Through the course of the fiscal year, the volume of complaints decreased notably per units sold. The OCS has worked with Licensed Producers to decrease the allowable THC potency range from a difference of 10% to 6% (although it will take several months for Licensed Producers to work through existing stock levels) and introduce a packaging date limit of three months for products delivered to the distribution centre.

The introduction of Cannabis 2.0 products with electronics and batteries, such as vapes, brought new orders of complexity. There was, in the first three months on the market, a normal rate of return and complaints for these products.

Number of product returns and quality assurance complaints April 1, 2019, to March 31, 2020

Open and closed quality assurance investigations April 1, 2019, to March 31, 2020

Total returns for the fiscal year April 1, 2019, to March 31, 2020

Product recalls in Ontario April 1, 2019, to March 31, 2020

For cannabis products

2,690191Currently

OpenClosed

investigations

TWOZERO

126Q1 Q2

173Q3

147Q4

314

Total 760

2,881TOTAL

Cannabis

Accessories

71 QA Complaints

313,917 Units Sold

0.023%% of QA complaints

2,881 QA Complaints

0.020%% of QA complaints

14,545,854Units Sold

Product quality recalls Recalls based on labellingNote: Both recalls were voluntary.

Introduction of Cannabis 2.0 products increased the number of items listed in Q4.

ocs.ca

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