Canada Could Become Over-Saturated with Cannabis Retail Stores

The ‘high’ experienced initially with the introduction of the cannabis retail trade in Canada has not lost its level of interest across the country as new store locations keep popping up and the industry continues to thrive.

The Canadian retail sector of the cannabis industry is maturing with an influx of new consumers of cannabis products and a growing demand from legacy consumers, said Michael Kehoe, a retail specialist and broker/owner of Fairfield Commercial Real Estate in Calgary.

“The market has accommodated the national brands and an array of local and regional independent retailers as brand loyalties are established. There are winners and losers and a shakeout has been underway with numerous retailers not meeting their revenue projections and burdened with high rents that is leading to many cannabis store closures in the post-COVID-19 period,” said Kehoe.

“Competition has been intense in the Canadian retail sector of the cannabis industry with new products being introduced such as edibles, vape cartridges, and others. There has been a gradual downward pressure on prices, an increase in product quality in the free market economy and this is good for the consumer. The governments who collect the taxes driven by increasing sales have evolved with efficiencies in their approval process of new retailers and their locations. The retail sector of the cannabis industry in Canada is now considered to be mainstream as the market has decided which retailers survived and thrived.”

According to Statistics Canada, in the fourth quarter of 2019, 16.7 percent of Canadians used cannabis in the past three months with Nova Scotia the highest at 27.5 percent and Newfoundland & Labrador at 25 percent.

In the first year of legalization, total retail sales at cannabis stores reached $907.8 million in Canada or $24 sales per capita between October 2018 and September 2019.

Retail sales in March were $181.1 million, up from $151.9 million in February.

Recently Inner Spirit Holdings Ltd., a Canadian company that has established a national network of Spiritleaf cannabis retail stores, announced that five franchise partners have secured proper approval for stores in Toronto, Ottawa,and Guelph.

INTERIOR OF TOKYO SMOKE STORE. PHOTO: TOKYO SMOKE

It also said there are seven additional Spiritleaf stores which have completed construction and are in the final stages of licensing in Calgary and Red Deer; in Toronto, Ottawa, and London; and in St. John’s, Newfoundland and Labrador.

Darren Bondar, Founder, President and CEO of Inner Spirit, said the company is excited to continue its expansion and set deeper roots into Ontario.

There are currently 48 stores operating in the country with at least five more opening in Ontario. The company has a presence in British Columbia, Alberta, Saskatchewan, and Ontario. Additional store locations are expected to open in 2020 in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, and Newfoundland and Labrador.

“The majority of our planned locations in Ontario will be franchise owned which aligns with our business model. We will support this core group of stores with a select number of corporate-owned outlets including the anticipated acquisition of the Kingston store this month and a flagship corporate store in Ottawa that is currently in the AGCO licensing queue. Overall, we believe the benefits of local entrepreneur ownership line up perfectly with the policy objectives of the Ontario government in crafting their retail cannabis laws, namely, to support small business,” said Dave Marino, the company’s Ontario General Manager and a Spiritleaf franchise owner.

Bondar said the company currently has over 80 stores in the pipeline which it hopes to get open this year but it will depend on licensing.

“It’s been really exciting. Obviously it’s been a bit of a roller coaster but now that we’ve seen a more stable market we continue to see same store increases. May was a record month for us. We’re seeing a lot of new entrants to the market where things like edibles and beverages are appealing to a new consumer but we’re also seeing a lot of legacy customers,” said Bondar.

INTERIOR OF TOKYO SMOKE STORE. PHOTO: TOKYO SMOKE

“I feel really bad for many of the businesses who are struggling out there but fortunately for us we’ve had a really good run. I think the strongest retailers will continue to grow. The independents can have success as well. They really just have to choose their segments of the market and do their thing. But definitely there’s some entrants that maybe didn’t have the retail or branding experience that will likely fall off.

“I think there’s still a lot of growth. Cannabis is still very new. The industry is only 18 or 19 months old and there’s under 1000 stores in Canada. I think there’s still going to be a lot of growth and again for retailers to be successful it’s really choose your segment and how you want to compete. It’s definitely going to be competitive and there will be some winners and losers.”

Rick Bohonis, an owner of a Tokyo Smoke store in Thunder Bay, Ontario, and former co-founder and past-president of Urban Barn, said the cannabis store opened March 1.

“Our opening day we did $77,000 and at the time we believe that might have been a Canadian record for cannabis retail,” said Bohonis, who is also a senior advisor with consulting firm DIG360.

“Like most retail, it’s location, location, location. Up until January 6 in Ontario, there were very few licenses or licenses even being contemplated to be approved. By population, it was crazy. There was 40 stores or so open in all of Ontario. You still had to choose your location because everybody knew that there would be a ton of competition out there and saturation.

“In Alberta, because of the way they doled out their licenses, saturation came quite quickly. The guys that are successful have picked very good locations, really well thought out. It’s definitely sales top line when it comes to retail especially in the GTA. In BC, it’s been very, very slow to approve licenses . . . so it’s not seeing that saturation. Alberta definitely did. I think there’s 400 stores or so in Alberta and I’ve talked to some retailers there and some of them are just not doing very well and I think we may even get to see the stage where some retailers in Alberta will basically say I can’t make this go, here are the keys, goodbye.”

INTERIOR OF HUNNY POT STORE. PHOTO: HUNNY POT

Cameron Brown, a spokesperson for the Hunny Pot cannabis stores in Ontario, said 2019 was a fantastic year for the business as it was one of only 25 stores in Ontario to open.

“We didn’t know what to expect with the brand new legal market and it exceeded expectations. The amount of people that were looking for access to legal cannabis and regulated product was astounding and I think everybody in that first 25 group would say the same,” said Brown.

The company has six stores located in Toronto with four locations and one each in Burlington and Hamilton.

“I think what we’re seeing now is the expansion that Ontario needed, being able to distribute legal cannabis to all of Ontario.”

Article Author

Mario Toneguzzi
Mario Toneguzzi
Mario Toneguzzi, based in Calgary, has more than 40 years experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald covering sports, crime, politics, health, faith, city and breaking news, and business. He now works on his own as a freelance writer and consultant in communications and media relations/training.

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