Coach Stephen Gemmell labelled their first-half display "unacceptable" after Canada ran in five tries to lead 33-0 at the break.
The Scots rallied in the second half and reduced the deficit courtesy of two tries from captain Colin, but could not prevent defeat.
Gemmell's side will face Pool C rivals Japan and South Africa on Friday.
James Pritchard slotted a neat grubber kick through the Scotland defence early on before touching down for Canada's first try.
And Justin Mensah-Coker breezed past the dazed Scots defence and offloaded to Adam Kleeburger to touch down.
Ciaran Hearn, Neil Meechan and DTH van der Merwe ran in further tries before the break and all were duly converted to give the Canadians a commanding lead.
Scotland improved in the second period as they retained their shape and reduced the number of handling errors to keep a clean sheet throughout.
Colin Gregor, with some great link-up play from Colin Shaw and Scott Forrest, finished off a fine attacking move for Scotland's first try and, from a stolen ball inside Scotland's 22-metre line, it was the Scotland skipper once again who proved to be Scotland's spark.
Shaw and Forrest once again combined and Gregor finished the move off with a strong hand-off to the final defender.
"Our first-half performance was unacceptable," said Gemmell afterwards. "Our heads went down straight after the first score and the players just looked shell-shocked.
"There are no excuses about the occasion because there are three players here who have been at a World Cup Sevens before and we've got two full internationalists in the squad.
"It's not how we've trained all week, but teams aren't judged on how they train, they're judged on what happens during each game and that simply wasn't good enough.
"The 13 of us, and I'm including myself in that, need to have a good look at ourselves before meeting Japan tomorrow."
Scotland 7s team v Canada: Scott Forrest (Ayr)*, Rob Dewey (Ulster), Andrew Easson (Edinburgh), Andrew Turnbull (Edinburgh), Colin Gregor (Glasgow Warriors) CAPTAIN, Mike Adamson (Glasgow Warriors), Roland Reid (Edinburgh) Subsitutes: Roddy Grant (West of Scotland)* for Dewey, Colin Shaw (Glasgow Warriors) for Reid, Jim Thompson (Edinburgh) for Easson