TORONTO – As deliveries flow from Lower Maine, British Columbia, to Dutch Love cannabis retailer, a trusted number of them come from customers in the suburbs of Surrey and Richmond.
The company can deliver its merchandise to those communities, but cannot physically open a store there due to local regulations that prevent brick-and-mortar cannabis operations from opening within their borders.
“We’re actually losing money on these deliveries…and hopefully at some point these municipalities will choose and we’ll be able to reach them,” said Harrison Stocker, chief growth officer at Dutch Love.
More than three years after the legalization of cannabis, municipal bans on pot retailers have left many communities across Canada without a brick-and-mortar supply, while other areas are crammed with cannabis stores.
Cannabis companies are in the middle – many of which are not yet profitable – and consumers who have to order products for delivery, head to the nearest area with physical retailers or turn to the illicit market.
Clients in the Peel District, a sprawling area west of Toronto, provide an excellent example.
Omar Khan, Senior Vice President of Corporate and Public Affairs at High Tide Inc. , in an email: “The Canna Cabana site in Brampton (Ontario) receives daily visitors from Mississauga due to that city’s refusal to sign up.”
“Unfortunately, many Mississauga residents will likely choose to purchase unregulated and untested cannabis products from illicit market sources due to convenience.”
The Ontario Cannabis Store, the province’s official utensil wholesaler, estimates that the illegal market handled 52.9 percent of pot purchases made between April 1 and June 30.
The Ontario Alcohol and Gaming Commission, which oversees the licensing of retail cannabis dealers, said 66 of the province’s 414 communities continue to ban retail cannabis, down from 77 at the start of legalization.
The Manitoba Liquor, Games and Hemp Authority said that six municipalities in that province have bans on retail cannabis sites.
The Canadian Press requested data on municipal bans from each province and territory. Only Ontario and Manitoba sent numbers.
The rest either didn’t respond, said they didn’t collect such data or said they don’t allow neighborhoods to opt out of pot retail but allow them to deny business licenses to cannabis stores.
The reasons for banning the retail sale of utensils vary by municipality.
Mississauga Mayor Bonnie Crombie said her municipality chose not to participate because “there are a lot of unknowns about the retail cannabis model,” while Vaughan, Ont. Mayor Maurizio Bevilacqua claimed that “families do not want greater access to cannabis in our community.”
Other communities have attributed the ban to fear of crime and fears it would become a haven for faraway pot lovers, but cannabis industry watchers say avoiding cannabis retailers allows these problems to flourish.
“Just because you have banned retail from your city does not mean that cannabis is not sold there,” said Deepak Anand, CEO of Materia Cannabis Ventures.
“Essentially you, as city council members or municipal governments, are choosing to further empower the illicit market.”
Cannabis entrepreneur Mimi Lam sees no point in preventing cannabis stores from opening.
“We don’t see municipalities choosing not to participate in cafes, bars or nail salons,” the co-founder of supermarket chain Superette pot said in an email. Why should hemp be different?
Many LAM stores are located in downtown Toronto, where a completely different situation occurs.
The city is teeming with cannabis stores, particularly along Queen Street West, and many shops dedicated to the neighborhood and its surroundings.
The spread has been so intense that Toronto City Council members Kristen Wong Tam and Paula Fletcher put forward a proposal in November to halt licenses for new cannabis stores for a year or until a regional law gives municipalities a say in the location and distribution of private cannabis stores.
The city council amended the motion to remove the stay order. The county bill is awaiting a second reading.
Many believe that the longer the current imbalance situation goes unaddressed, the more difficult it becomes for retailers to make profit and tap into profitable markets.
For example, Stocker said Dutch Love’s research showed that secondary and tertiary markets such as suburban areas are “potentially stronger” than major city centers, but that utensil stores are still prohibited in many of those areas.
In places where stores aren’t banned, analyst Douglas Mehm at RBC Capital Markets found average monthly sales per cannabis store fell below $200,000 this summer, down from $300,000 two years ago.
During the same time period, licensed producers laid off thousands of workers, closed many facilities, and wrote off millions of dollars in an effort to align supply with demand and reach profitability.
Although Mih’s sales forecast increased for the remainder of 2021 as well as the next two years, it indicated lower ratings for licensed producers. He predicted in his October note to investors that some stores would close and that those that would remain would lose some economic viability.
Mike Armstrong, assistant professor at Brock University, agrees.
It compiled consumer-reported data from Statistics Canada and found that the growing number of cannabis stores accounted for 46 percent of quarterly sales changes. Only eight percent of the conversions can be attributed to new customers.
“Opening more stores is very important to reach underserved markets, so in counties that don’t have enough stores, yes, definitely more stores will open,” he said.
“But once you actually have stores, those stores don’t seem to add much to the demand.”
While people grumble about the uneven distribution of retail locations, Armstrong believes it won’t be a problem forever.
He predicted that eventually the entrepreneurs would get a more realistic sense of demand, profitability, and competition, and the big chains would buy up small pot shops.
Some will decide, ‘This is not the big gold rush I thought it would be,’ Armstrong said.
“The market is actually going to sort itself out, just as any other industry would.”
This report was first published by The Canadian Press on December 12, 2021.
Tara Deschamps, The Canadian Press