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What’s the future of cannabis retail in Canada?

Canada sparked a revolution when they legalized pot in 2018 and things are only going to get more exciting over the course of 2019.

In 2019 alone, sales from recreational cannabis are expected to reach up to $4.34 billion, according to a Deloitte estimate which was made prior to actual legalization.

The same report found that more consumers, specifically 55 percent of those surveyed, are willing to pay a higher price, provided their products will come from legal retailers. Hence, the research indicated that 47 percent of recreational products will be purchased from physical retail locations. These stores will be highly integral in the newly opened market sector.

After the legalization was implemented, however, the reality was that retail stores soon lacked supplies. Some analysts said that the supply bottleneck could linger until the end of 2019 or even longer.

Limiting the issuance of retail licenses

Perhaps one of the biggest hiccups faced by the legalization of recreational marijuana is Ontario’s decision to limit the issuance of licenses for retail stores. The province decided to hold a cannabis lottery draw where only 25 applicants will be granted licenses to operate physical locations. The move entirely limits the potential of Canada’s largest cannabis market.

The winners were announced in January and 25 licenses were distributed in Toronto, Greater Toronto, Western Ontario, Eastern Ontario, and Northern Ontario.

Now, as these 25 winners are expected to open by April 1, companies backed by Canada’s largest cannabis producers are also scrambling to enter into agreements with them. Essentially the companies are aiming to help these winners, who are mostly individuals, to manage and operate the businesses. Such agreements are allowed by the province as long as the lottery winners have the majority ownership of the stores.

To demonstrate what has been happening, take Aurora-backed, Choom Holdings Inc. as an example. Aurora Cannabis secured the rights to acquire up to 40 percent stake in Choom — an emerging adult-use cannabis company — as early as November 2018.

“Through this strategic investment, Aurora further diversifies its retail strategy, with additional retail opportunities across Western Canada, and future potential opportunities in the Ontario market,” Terry Booth, CEO of Aurora, said during the announcement of its acquisition.

That opportunity in the Ontario market started to materialize on Feb. 13, when Choom announced that it has entered into a letter of intent agreement with one of the 25 winners of the cannabis retail lottery. The name of the winner has yet to be disclosed as of press time.

Choom has always recognized Ontario as a significant market for recreational cannabis. It has, in fact, finalized members of its Ontario retail team as early as December 2018.

“The private retail market in Ontario provides the greatest opportunity across Canada for cannabis retailers. This channel in Ontario is poised to be larger than all the other private cannabis retail channels in Canada combined,” Chris Bogart, President & CEO, said at the time.

Choom, whose market strategy is highly focused on developing retail opportunities in the country, has already secured the rights to 54 retail locations across Western Canada. A total of 46 applications were also submitted in the region. Out of 46, 10 stores are currently under construction and 17 more are already at their build-out stages.

What consumers expect from physical retail locations

Recreational cannabis was illegal in Canada for decades. The idea of buying it casually is somewhat a novel experience for many. Nevertheless, when asked what they expect of future cannabis retailers, consumers actually want things they normally observe in any other mainstream shop.

According to Deloitte, 71 percent of those already consuming cannabis considered product knowledge as a must-have among retailer staff. Sixty-nine percent of those who have not consumed weed before but will consume after legalization also believe product knowledge is a must-have.

Other requirements consumers want from physical retail locations are properly indicated prices and prominently arranged products. Seventy percent of existing cannabis consumers and 69 percent of future cannabis buyers said this is a mandatory feature that they want to see in retail locations.

But perhaps the most striking expectation from the majority of existing and likely cannabis consumers is that they wanted stores with a welcoming ambiance, easy navigation, and convenient store hours. Many of them would also want cannabis retail stores to be located in a safe district, which at the same time is far from schools and other places frequented by children.

What’s next for cannabis retail?

The legalization of recreational cannabis may still be facing issues at present. But if the ultimate aim is to normalize buying leisure pot products, then the country is definitely on the right track.

Just observe how major players are shaping the industry at present — their decision to explore retail opportunities across provinces and focus on strengthening their retail arms are a strong indication of what’s yet to come. Aurora’s notable investment in Choom is just one among the many examples of this.

Moreover, cannabis retail is emerging to become comparable to Canada’s traditional retail industry which from 2014 to 2018 had generated sales of about $498 billion. That’s a bright future indeed.

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