Over the last 3 years I have taken the pleasure to launch several cannabis storefronts across the country and although regional differences are evident; it's nice to see and experience the cannabis culture here in Canada. 

In Ontario alone there are a little over 1,000 storefronts authorized to open, out of ~1,800 stores that have applied. At the current pace there are ~80 store authorizations (permitted to open) happening per month.

There's a lot of competition and the consumer facing part of the industry is near saturation - this is true in areas of Toronto, especially downtown where it's common to find a handful of stores within a short walking distance from one another. What you have today is competition among stores with the same product line.

1. Product Differences Are Becoming Tied To Market Entry

After the initial legalization craze; a time where stores rushed to the market with limited product, came a lacklustre initial performance known as "cannabis 2.0". Today I would say we have entered the market saturation phase - during this phase, it's common to see many retailers within close proximity to each other, selling relatively the same products only to differ through customer service, price points and store layout.

In this phase, newer stores potentially have the initial advantage when it comes to product selection as they have the opportunity to curate a list of products that are fresher (by package date), marketing efforts, or recently introduced to the market. However, small batch products, which are products usually grown on a smaller scale, that could not fulfill all store orders, will enter into a lottery. 

Newly launched stores also have the advantage to stock up on products that have received "price drops" (sales) from their government wholesaler. These advantages play a key role as many newer stores can purchase the same products at a cheaper price than what their competitors have bought weeks or months before. This creates a situation where retailers could be priced out of the market.

Also bear in mind, there are no product returns in this industry.

2. Small Businesses & Local Shops Need To Leverage Customer Service

Understanding your customer's needs, the market trends and the strains being produced are fundamentals in building your cannabis retail business. I found that stores that have employees that embody the cannabis culture and convey the sense of authenticity do far better than the ones that don't or at least don't appear to have any.

What I mean by authenticity comes down to product knowledge, "walking the walk", but also having the ability to connect with others. Many people consume cannabis for various reasons and being able to relate back to the consumer is what keeps them coming back to your store over others.

3. The Government Is Your Competition - Not Your Friend

Let's not forget the biggest elephant in the room. The provincial suppliers, across the country, every storefront orders at a wholesale rate from their respected province - but the same provinces are also allowed to sell directly to customers forcing slimmer margins on private retailers. Depending on where you live, acquiring cannabis from the government can be done via physical store fronts as seen in Quebec or in British Columbia's hybrid model (retail and online) or exclusively online as seen elsewhere in the country with the exception of Saskatchewan.

On paper, many argue that having government wholesale suppliers can help level the playing field for smaller retailers. For instance, having the Ontario Cannabis Store (OCS) as a supplier; each retailer pays the same wholesale price for the same product. This in turn, takes control of supply away from licensed producers that own retailers and companies with deep pockets and close ties to large scale growers. The argument here is that by doing so this prevents those large players from undercutting their competition.

For example, large chains and Cannabis brands such as Tokyo Smoke, which is owned by Canopy Growth, would have the power to undercut the competition if other measures were not put in place.

However, from a private retailer's perspective, government's involvement in the direct sale to consumers can be cut-throat. For example, depending on your location one could order from the OCS and get same day delivery up until 11pm. Up until recently, retailers on the other hand, were only allowed to deliver until 8pm and before the pandemic - not at all. 

Up to this day - cannabis retailers still can not sell online and a retailers best option for online sales falls under the guise  of a "click and collect" style commerce. Also note that the OCS does have a habit of hoarding more desirable products or small batch products, for their own online business.

However, Alberta has recently introduced legislation that would permit private retailers to sell online.

Growing Pains

The cannabis market is growing and personal taste and new strains come and go. There are a few dominant consumer types that I've advised to look out for when starting a cannabis retail store. First you have the customers who shop for the bang-for-your-buck, second you'll have the customers who shop on hype, third, you'll have the therapeutic shopper (remember medical terms are a no-go in a recreational store) and finally you'll have the craft shopper.

The craft market and the craft consumer in general is an underserved market and that's 3 years after legalization. Depending on who you ask some will say that the overall craft market still hasn't made the transitions. However, there are many smaller producers that have entered the market only to find that getting their products on shelves is a big hurdle. The provincial suppliers do set quantity minimums which in turn pushes a lot of small growers into the hands of the larger companies.

Where do these producers fit into the equation? That is yet to be seen, but I must say they would be better off forming direct relationships with smaller retailers but as current regulations sit that just isn't the case. As the industry continues to undergo it's growing pains we should be asking, how we can have better regulations in place to improve the overall experience for those pioneering a new industry. 

Stay Elevated