TORONTO -- If there鈥檚 one thing the western stretch of the Danforth, a busy street in Toronto鈥檚 east end, suddenly isn鈥檛 short of, it鈥檚 cannabis stores.
First it was Canvas, a brightly lit store in a former diner, part of a small local chain. Then, ten minutes鈥� walk down the street, Friendly Stranger, owned by national chain Fire & Flower, opened up shop. Then Green Merchant, part of a small local chain, opened a store across the street from the Friendly Stranger.
Finally, Canopy Growth, owner of retail chain Tokyo Smoke, confirmed this week to CTVNews.ca that they plan to open a fourth store in the neighbourhood, just across from Canvas.
Ontario, which has lagged far behind other provinces in opening cannabis retail stores 鈥� with an outsized effect on the national legal cannabis market, which for a long time lagged because of Ontario鈥檚 lack of stores 鈥� is now making up for lost time, slamming the accelerator on licensing new stores. Regulators there are now issuing , or one every hour-and-20 minutes of the working day.
At that rate, Canada鈥檚 most populous province will have 1,390 legal cannabis stores by October 1, or one for every 10,000 residents and two for every liquor store.
The pace of openings raises a couple of questions. How many legal weed stores can Canadian customers actually keep in business? If there is a shakeout, what will the survivors have in common?
Stores seek to form loyal customers, but rigid rules make it challenging
As in other retail businesses, observers we talked to said the key to success is developing relationships with loyal customers.
But with all stores forced by law to deal with one monopoly wholesaler, and federal laws making marketing nearly impossible, it鈥檚 very challenging to figure out how to stand out from the competition.
鈥淲e have a few unique trends here,鈥� said Shayne Ward, assistant manager at Green Merchant. 鈥淲e have a rosin press that we鈥檙e using, so you can buy fresh flower, and we鈥檒l press it into a concentrate for you. We also offer rolling services with a pre-roll machine.鈥�
As well, he told CTVNews.ca the store will match any competitor鈥檚 price for a given product.
The problem with using these details as selling features, though, is that rigid advertising restrictions forbid the store from promoting them in the window. And with tight public health measures in place, customers who visit the store can only 鈥榗lick and collect,鈥� or pay in advance and pick up their purchases from the door with minimum interaction.
鈥淏ecause of COVID, we are extremely limited in what we can do. Especially under this lockdown, we aren鈥檛 allowed to help customers at the door 鈥� it has to be over the phone, or online. It鈥檚 thrown a bit of a wrench into everyone鈥檚 plans, to be honest,鈥� said Ward.
(Ward says he didn鈥檛 open across the street from Friendly Stranger on purpose: 鈥淲e actually had this space reserved before they even got that rental space.鈥�)
Adam Vassos, a spokesperson for Canvas, said the opening of competing stores didn鈥檛 seem to hurt sales.
鈥淚t didn鈥檛 really affect the business in any way,鈥� he said. 鈥淭o be perfectly honest with you, the more legal stores that you have, it improves business. It鈥檚 almost like a restaurant. You may have one restaurant on the street and it鈥檚 doing well, but then when more restaurants show up on the street, it becomes kind of a destination.鈥�
Stores that are physically bigger will have an advantage, he says, since they have the space to store more products and therefore offer customers more variety. Beverages, for example, take up a lot of space, and the government-owned wholesaler only delivers once a week. (Stores aren鈥檛 allowed to store cannabis off-site.)
He predicts a winnowing-out process as the market matures.
鈥淚n the end the strong will survive, just like any industry, and the weak will not survive, unfortunately.鈥�
Toronto-based cannabis lawyer Matt Maurer agrees.
鈥淭here are people 鈥� I don鈥檛 think it鈥檚 going to be a handful, I think it鈥檚 going to be more than that 鈥� that are going to spend hundreds of thousands of dollars going into this business and will have to close. There鈥檚 just not enough room for everyone. It鈥檚 bad in that sense, that this isn鈥檛 going to go well for everyone,鈥� he told CTVNews.ca.
鈥淯ntil the dust settles, it鈥檚 going to be hard. It鈥檚 going to be easier as we move ahead and we see how many are open and how many start closing. By the end of this year, we might start seeing some of those stores start to close.鈥�
Some brands have worked very hard at standing out, and creating customer loyalty, by creating a specific look and feel in their stores, says Deepak Anand, CEO of Materia Ventures, a cannabis supply and distribution company,
鈥淵ou鈥檙e seeing a few retailers like Superette, or West Coast Cannabis Store in B.C. and Alberta, that have done a really good job with respect to how the retail consumer is treated when they go onto a store,鈥� he said. 鈥淭hat level of differentiation of customer service is going to be very important for the survival of a number of stores.鈥�
That said, as the industry matures, he expects to see stores specialize: selling only edibles, or beverages, or high-end dry flower, or plants for home growers.
鈥楩arm gate鈥� sales, in which customers are allowed to buy cannabis directly from growing facilities, will be a further source of competition in B.C. and Ontario, he said.
鈥淚f you have five retailers in a span of one block, I don鈥檛 know how that would continue to carry on with some unique differentiation,鈥� Maurer said.
鈥淚t鈥檚 too early to see if that model works. Just because it鈥檚 around doesn鈥檛 mean that it works.鈥�
鈥淭here are a few ways to make it through. If you鈥檝e got a really great location, somewhat to the exclusion of other stores, you鈥檙e going to be okay. If you鈥檝e got some good first mover advantage in your neighbourhood and you really take advantage of it and get customer loyalty, you might be okay. But if at a random intersection you鈥檝e got a store on each corner coming up all at once, it鈥檚 going to be hard.鈥�
How many cannabis stores are there room for? More than you might think, U.S. experience shows
How many cannabis retail stores can Canadians keep in business? It seems that we鈥檙e in the process of finding out.
Alberta, Canada鈥檚 fastest province to open private-sector cannabis stores, now has one for every 7,478 residents. In B.C. it鈥檚 one to 16,346. Colorado has a legal store for every 9,587 people, and Oregon has one for every 5,698 people.
鈥淧ersonally I think one store per every 10,000 people is probably a good area to be set at,鈥� Anand says. 鈥淗aving said that, three, four or five stores in one block is probably excessive.鈥�
As for having two cannabis stores for every liquor store, Vassos points out that cannabis stores are typically much smaller.
As well, while alcohol buyers generally know what they want, pay for it and leave, cannabis buyers more often want to discuss the product.
鈥淭he difference between a (liquor store) and a cannabis store is that with a (liquor store) the products are on display,鈥� he said. 鈥淵ou can walk in, pick up a bottle of vodka right off the rack and not have to speak to anybody. You can be in and out in a few minutes without any interaction with an employee except maybe the cashier.
鈥淲ith a cannabis store, the products aren鈥檛 on display, it鈥檚 a relatively new product, so people need to spend the time on education. They don鈥檛 know the difference between a vape and an edible or a topical. There are so many different products. It鈥檚 a much longer transaction. For that reason, you need more stores.鈥�
Residents of to concentrations of cannabis stores on their main streets. But in practice, they don鈥檛 create problems, Maurer argued.
鈥淲e get people writing in and saying that there are already too many stores, with this sort of implication that the more stores there are, the more unsavoury characters are going to be drawn to the stores at all hours of the day to shop. But that鈥檚 not how these stores operate. They are 19 and over, you can鈥檛 see anything from the outside, you can鈥檛 really smell anything, because everything comes prepackaged.鈥�
鈥淲hen you鈥檝e got bars and people spilling out at 2 a.m., and noise, and maybe fights on the street and traffic, and people urinating in the alleys and whatever else, those same concerns don鈥檛 exist for me with respect to cannabis stores.鈥�
