Cannabis legalization: why proximity matters
Over the last year, Statistics Canada has been working to track the socio-economic implications of cannabis legalization, producing statistical insights into everything from rates of consumption, to the prices Canadians are paying across the country.
In a recent study, the agency looked at how accessible cannabis will be immediately following the change in legislation, relative to a similar regulated commodity: liquor.
In the case of liquor stores, two sources of big data were used: the census and the business register. The business register was used to determine the location of retail outlets across the country, while census data was used to plot the location of Canadian households. An analysis was then undertaken to measure the average distance between the two.
For cannabis, a similar exercise was undertaken using publicly-available information about the prospective number and location of new stores. In this case, the numbers are somewhat speculative, and represent best estimates.
So why undertake such an extensive geographic study?
The importance of accessibility
To answer this question, it is important to consider the distinction between potential and actual demand. Potential demand speaks to the number of individuals who intend to purchase cannabis from a regulated outlet. The agency has studied this element through the National Cannabis Survey, which asked Canadians about cannabis consumption, in the context of current behaviours as well as intentions to either start consuming after October 17 or to switch to a legal supplier. By contrast, actual demand is just that: the number of individuals who will actually purchase legal cannabis.
In the lead-up to the change in legislation, one of the most pressing questions focused on how well supply and demand will align following this change. As Philip Smith, Research Economist in Statistics Canada's Macroeconomic Accounts Branch puts it, “the concern is that when cannabis becomes legal, demand will be much greater than supply, because the industry itself has not yet fully blossomed.”
In other words, potential demand may be significantly higher than actual demand, as some Canadians who would purchase legal cannabis may find that there is no outlet in their immediate vicinity. The aim of the proximity study was therefore to shed light on the extent to which actual demand may be constrained because of a limited number of authorized stores in the fourth quarter of 2018.
So what do the results tell us?
Liquor vs. cannabis
The data paint a portrait of two regulated products with very different levels of accessibility.
On the one hand, Canadians have remarkably good access to the 2,895 liquor stores across the country, with 90.2% of the population residing within 10 kilometres or less of one of these locations, at an overall average distance of 5.4 kilometres. As might be expected, those residing in areas of low population density, such as Nunavut, have lower accessibility, while accessibility is highest in the four most populated provinces: Ontario, British Columbia, Alberta and Quebec.
By contrast, proximity to cannabis outlets is expected to be significantly lower. With an estimated 288 stores to open in the fourth quarter of 2018, only 34.7% of the population is expected to have access within 10 kilometres or less of their residence, and 24.9% within 5 kilometres or less.
Rates of access to these new outlets are also expected to vary considerably across the country, as each province and territory implements its own rules and regulations. In British Columbia for example, where cannabis will be available for purchase through both public and private retailers, 72.8% of the population is expected to reside within 10 kilometres or less of a store. By contrast, only 40.4% of the population in Quebec—where sales and distribution will be overseen by the provincial liquor control board—is expected to have this kind of access. In Ontario, there will be no outlets open until April 1, 2019.
One caveat is worth mentioning: as of October 17, consumers in all provinces and territories will be able to purchase cannabis products online and grow their own plants at home. For those without convenient access to a ‘bricks and mortar’ store, these options will dampen concerns about proximity to some extent.
The anticipated shortage of retail outlets in the period immediately following legalization underscores the value of such studies. As with any regulated product, the potential for continued illegal activity after October 17th remains. The question of proximity in this context is crucial, as it can be assumed that the accessibility of legal cannabis will have a direct impact on the size and scope of the corresponding illicit market.
Statistics Canada will continue to produce updated proximity measures as the new industry grows, which will serve several applications. For federal and provincial regulators working to control the production and sale of cannabis, this information is likely to be of great interest. It was recently estimated that Canadians spent $5.7 billion on cannabis products in the second quarter of 2018; ongoing proximity analyses will help shed light on the question of how much of that activity will be translated into legal sales.
The data will also be useful in terms of contextualizing sales by province and territory. Starting in January 2019, Statistics Canada will be producing this information on a monthly basis. As each jurisdiction is taking its own approach, with some planning a large number of stores immediately following legalization and others moving more slowly, it is likely that sales will be disproportionately high in some areas and disproportionately low in others. Data on proximity will be helpful in explaining such variation across the country, in terms of how the new demand for cannabis emerges.
Ultimately, studies like these are part of broader program underway, as Statistics Canada works to incorporate the measurement of a newly legalized commodity within the statistical framework. Over time, it is expected that the legal supply will largely adjust to the overall demand for cannabis, facilitating the future compilation of related statistics.
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