A Flavor Hunter's Paradise, Canada's Vape Market Skyrockets As Weed Industry Titans Cash In

Pablo Zuanic, senior analyst at Zuanic & Associates delves into Canada's cannabis vape market, looking at its diversity and growth driven by evolving consumer preferences and regulatory shifts.

Highlighting companies like Auxly CBWTF, Decibel DB DBCCF, and Tilray TLRY, the report reveals the sector's complexity with a focus on the vape segment's 15% year-over-year sales increase and the significant market share dynamics among key players.

Market Reshuffle And Growth

The Canadian vape market witnessed a year-over-year reshuffling among top companies, driven by their responsiveness to consumer demands such as larger 510 cartridge formats, disposables, closed-loop systems and live resin cartridges.

Despite these shifts, the top five players - including publicly listed Auxly, Decibel and Tilray as well as private companies Ayurcann and Motif - maintained a dominant 53% market share in Q4 2023, nearly stable compared to 55% in Q4 2022.

The vape segment itself has shown remarkable growth with sales up 15% year-over-year in Q4 2023, outpacing the overall market.

Specifically, 510 cartridges remain the most popular format, accounting for 77% of sales, followed by disposables at 12%.

However, the rise of larger cartridge formats signifies a trend toward higher capacity options, with 1.2ml cartridges growing 3.5 times and new 2ml cartridges already making up 2% of vape sales.

Pricing And Provincial Trends

The report also sheds light on pricing dynamics, where the average vape price per gram equivalent fell to $8.65 in Q4 2023, a 9% decrease from the previous year.

This trend toward lower prices is partly attributed to the shift towards larger format cartridges, which offer consumers better value.

Provincial sales data reveal that vape products accounted for significant portions of cannabis sales, with Alberta leading at 22%, followed by British Columbia and Ontario. Quebec remains an outlier, with vape sales prohibited.

Leading Players And Strategic Moves

Motif Labs emerged as the market leader, with its share growing from 13.1% in Q4 2022 to 20.2% in Q4 2023, thanks to its rapid adoption of larger cartridge sizes and the introduction of new brands and products.

Other top companies like Decibel and Tilray experienced sales declines, attributed to slower responses to market trends such as the demand for larger cartridge formats.

The introduction of closed-loop systems by Decibel (Blinker) and Motif (Rizzlers) indicates a strategic move to differentiate and strengthen market positions, even though such systems currently represent a small fraction of overall sales.

Investment Insights

Zuanic & Associates underscore the importance of Canadian Licensed Producers (LPs) in the global cannabis market, citing expertise and export potential as key factors.

With an optimistic outlook on the sector's evolution, the firm maintains Overweight ratings on Decibel and Village Farms VFF, highlighting the competitive positioning and growth prospects of these companies.

Zuanic specifically notes the adaptability of these companies to consumer trends, such as the demand for larger vape cartridges and the introduction of innovative products like closed-loop systems.

The report further elaborates on the financial health and market share expansion of these firms, underlining Decibel's effort to solidify its presence with new product lines and Village Farms' exploration of export opportunities.

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