Canada 180x180 - Deregulation fever

Canadian politics have turned radical, with cannabis now legal and the biggest alcohol retail monopoly under threat. What might be the effect on the world’s third most attractive wine market?

Having spent years as one of the most reliable, stable and predictable wine markets in the world, Canada is becoming an exciting place to do business, and not always in a good way. Wine Intelligence’s Compass global market attractiveness index ranks it the third most attractive wine market on the planet. Its Millennial generation is becoming more active in the category, demanding quality, good stories, and pushing average price per bottle up, while drinking noticeably less than their parents’ generation. Premium rosé and sparkling wine is flying off the shelves, and not just in the summer months. And the renaissance in local wine production, both in the traditional growing areas of southern Ontario and, more spectacularly, in the Okanagan Valley in British Columbia, are fundamentally changing perceptions of the domestic wine offer among these newer consumers – and some of the older ones too.

Amid all this positive news, wine producers and importers are facing two major challenges: the introduction of legalised edible cannabis-based products later this year, and the unashamedly activist Ontario government, led by Doug Ford, which is determined to deconstruct Ontario’s long-standing state-run alcohol monopoly.

As he approaches his first anniversary in the job, Ford remains committed to his populist election campaign pledge to deregulate beer and wine sales completely. Small-scale deregulation started four years ago, under the previous administration led by Kathleen Wynne, and mainly affected beer sales. Ford’s plans would accelerate this change, and put wine and beer into hundreds more grocery, convenience and private liquor stores throughout the province. To do so, he would need to break a 10 year standstill agreement on further change negotiated with the alcohol industry at the time of the Wynne deregulation in 2015. While the government could go down this confrontational path, the more likely outcome is a renegotiation with the major alcohol businesses and a slower pace of change, to allow industry and retailers a chance to get to grips with a fundamentally different selling model.

Of the two challenges, cannabis represents a slightly more predictable path, but perhaps the more threatening in the short term. The federal government’s decriminalisation process for cannabis continues, following the fairly low-key introduction of regulated shops in 2018, one can now buy several different varieties of pot to smoke. So far, there hasn’t been any major ripples in consumer behaviour. Initial Wine Intelligence research suggests that this move hasn’t made a material change to wine drinker behaviour.

However this may all change later in 2019, when so-called cannabis edibles come to market. These will consist of food and drink products infused with THC, the psycho-active ingredient in weed, and CBD, its non-psycho-active sibling. Many alcohol companies, including AB Inbev and Constellation Brands, are expecting the “edibles” market to be large and lucrative, and are making big bets on new product development in this sector. The law in Canada will prevent drinks using cannabis infusions from containing any alcohol, so any “wine” or “beer” marijuana will be of the non-alcoholic variety, though consumers will be free to mix the two once purchased.

So far the evidence of legalised cannabis’s effect on the market is inconclusive, though a fairly basic economic analysis would suggest that as a substitute for alcohol in the relaxant category, it may well siphon off some of the spending that currently goes on beer, wine and spirits. Of the three, current market sentiment suggests that beer is most at risk. That said, industry commentators are increasingly conscious that the right cannabis edible might prove a real threat to the wine category’s key occasion of the evening meal. Swapping your dinner Chardonnay for a relaxing glass of “marijuice” is a much more realistic possibility than lighting up a joint at the dinner table.

For more information, please see the Wine Intelligence Canada Landscapes 2019 report.

Richard 180x180 - Deregulation fever



Author: Richard Halstead


0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply