The current total cannabis market (legal and illegal) is about $8 billion annually in Canada, based on average consumer spending of $107 per month by current consumers, according to Vividata’s National Cannabis Consumer Study 2019.
Close to 40% of adult cannabis users in Canada reported obtaining cannabis from the black market in the past year. For those buyers, top sources included a friend (59%), dealer (32%), private dispensary (23%), online (18%), family (12%), and other (3%), pointing to the social nature of cannabis consumption, with the majority of illicit consumption happening through friendships.
Social lounges have even begun sprouting (or making a legal comeback) in the cities, from byMinistry cafe in Toronto — created by the founders of Tokyo Smoke — a cannabis-centric lounge rolling out a variety of different events aimed at educating consumers in a hands on way, to Kensington Market’s Hotbox (under renovation), to others in Canada and more prevalent in San Francisco in the US at the moment.
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Legal cannabis was obtained in the past year by over half (53%) of cannabis users, through sources including retailers (55%), online (46%), medical providers (17%), and homegrown cannabis (6%), signalling new opportunities in retail for a whole new category. However, legal cannabis in Canada came under criticism for being close to 60% more expensive than illegal cannabis for the most part, and not being able to match supply with demand in most provinces.
The disparity was more acute in Ontario, where the legal retail rollout was slowed by a lottery system, and other provinces reporting more profits. Critics suggested that only those with the connections and high net-worth were able to get their foot in the Ontario retail allotment. This year, Ontario’s retail allotment system got replaced with a system of “merit” which critics still suggest has loopholes in terms of not being able to achieve the province’s target capacity of 1000 stores by 2020.
Canada’s largest number of current cannabis users per capita are likely from the Atlantic provinces of Nova Scotia, Newfoundland and Labrador, New Brunswick, PEI, followed by Ontario and Manitoba. In-store legal retail purchase of cannabis was likeliest made by residents of the Atlantic provinces (Nova Scotia, New Brunswick, Newfoundland and Labrador) followed by BC, Manitoba, Alberta, and Saskatchewan residents. Ontario and Quebec residents under-indexed in legal cannabis in-store purchases.
Provincial Cannabis Retail Models Vary
Canada’s provinces boast a retail model that includes government-operated stores, private licensed stores, and online retailers. Ontario, home to a population of 14 million residents, hosted only about 24 stores in 2019, vis-à-vis Alberta’s 300+ stores for a population of 4 million.
Saskatchewan’s cannabis retail model has been cited as especially efficient in bridging consumer access to product and meeting supply with demand, owing to its unique provincial rules that allow wholesalers to deal directly with licensed producers. In Saskatchewan, any retailer that sells cannabis must meet the SLGA’s (Saskatchewan Liquor and Gaming Association) permitting requirements, including a good character check, inventory tracking, and store security, as well as comply with municipal zoning laws. Quebec raised the smoking age to 21 and disallows home-growing of cannabis.
Those who live in Saskatchewan are 77% more likely than other Canadians surveyed to spend between $8-10 per gram on bud/flower. According to the CFO of Saskatchewan based retailer Fire and Flower, Chris Bolivar, a good retail experience is shaped by the canasta or budtender. However, some customers want to engage with technology versus a human being, evident by the second most popular mode of obtaining cannabis, online. Dovetailing consumer preferences, retailers in the provinces need to look into developing a strong online and physical retail (phygital) presence for cannabis products in stock.
Does the government model work better than the private retail model in the provinces? Will the provincial governments end up opening cannabis retail locations like the LCBO in Ontario and the SQDC in Quebec? Cannabis began being sold in publicly run stores by the government-run Société Québécoise du Cannabis (SQDC) starting October 17, 2018. Whether the government-owned retail model will grow the category of cannabis in every province is something that remains to be tested and seen.
Customer-Centric Retail Experiences
The digital and physical retail avenues compete strongly for the legal cannabis consumer. Among current cannabis users in Canada surveyed by Vividata, the preferred mode of access to cannabis online remained highest among Albertans, Saskatchewanians, New Brunswickers, and Ontarians (in that order of likelihood of preferred access) reflective perhaps of the advanced digital or even omnichannel retail in those provinces, including options like text delivery services.
Fire and Flower’s Bolivar believed that strong retail is created by talking to consumer communities, ensuring localization, and being a good neighbour who a) differentiates to secure a lease b) honours the lease with timely payments c) is not invasive of other businesses d) regularly engages in traffic analysis e) understands or respects others (and is cognisant of loitering concerns) and f) has a data strategy.
Localisation of cannabis retail is important according to retailers, as people recognize and cherish community especially in rural regions. Moreover, specific segments like the consumer group popularly tagged by brands as “yummy mummies” representing the older new female consumer are still experimenting with cannabis to understand its effects, and more open to adopting cannabis via forms like vapes or edibles.
Some retailers like to segment their consumers as new users, veteran users in the illicit market ambivalent about legal cannabis, old time users who are looking to make a comeback into legal cannabis consumption, and the undecideds. Such segments can be studied and analyzed based on their needs and motivations before retailers decide how to target and appeal to bigger potential markets like users of topicals, vapes, and edibles in an age where “combusting through the lungs” is predicted to go out of fashion, because it involves heavy preparation time, portability challenges, and dirty odours.
Vividata’s survey points to opportunities across every age cohort seeking avenues for more education. Education based responsible retailing is a key area where stores can differentiate themselves to new consumers. At a time when 4 in 10 Canadians don’t know the difference between THC and CBD — the two principal cannabinoids of cannabis — and 7 in 10 are unsure, improving consumer access to education can be critical.
The future of cannabis retail lies in active and widespread customer and consumer education. CannEd Retail is an in-store educational platform for retailers and their customers, initiated by Responsible Cannabis Use (RCU). Colour coding products with THC:CBD ratios to illustrate product composition and potential effects are another example of effective product education; in-store demo sessions and pamphlet creation or off-site community centred presentations are other methods. Current and potential consumers look to websites, search engines, people that use cannabis and friends as some of the top sources of information about cannabis.
Product standards (quality) and product form remain top criteria in users’ selecting cannabis products. According to Vividata, alcohol remains more socially acceptable than cannabis consumption, but consumer standards of alcohol versus cannabis are different even if both categories rely on understanding consumers’ latent desires and stigmas. Health Canada regulations make a strong distinction of the three categories: alcohol, tobacco, and cannabis.
Twinning Opportunities in Real Estate with Cannabis
Real estate landlords have always been on the hunt for the shiny new thing and cannabis uncorks an important opportunity in real estate properties despite the limitations around where cannabis properties can and cannot be built with respect to municipal, provincial, and federal regulations.
Cannabis retailers are not yet able to open stores in shopping malls, but in strip malls, however, Aurora opened a flagship store at the West Edmonton Mall setting a strong precedent for more accessible spaces in cannabis retail. High street retail is still a challenge, especially with municipalities’ concerns about retailers in malls appealing to the wrong (underaged) crowd.
Cannabis retailers could focus on the product, accessories, and the experiential elements at their points of sale. According to the latest PWC report on cannabis and real estate, cannabis retail landlords will need to check that sellers are licensed and in compliance with the laws of tenancy. Understanding the laws, developing a cannabis strategy, tracking opportunities ahead, and being agile are some ways to stay on top of smart and compliant cannabis retail in the provinces.
In effect, how every province deals with the challenges and opportunities ahead with building a strong retail system that is sensitive to the needs of all consumers is what will determine the success of cannabis retail in Canada.
Arundati Dandapani advises and supports non-profits and businesses with insightful storytelling at the intersection of cannabis, media and marketing (or social) research. A well-published research professional, she is the Founder of Generation1.ca, an online cross-sectoral resource and outlet for Canada’s newest residents. She was also honoured with industry awards like the inaugural GRIT Future List in 2019 along with the Qualitative Research Consultants Association’s 2020 Young Professionals Grant, is involved with multiple industry associations, and is also the Chief Editor of MRIA-ARIM. She can be reached at firstname.lastname@example.org.