Canada’s Retail Cannabis Sector Growing Despite Challenges

It’s been about a year since the historic legalization of cannabis came into effect in Canada, and the retail segment for marijuana is still finding its footing.

The cannabis retail space in Canada has faced hurdles since its launch. As industry experts and analysts have noted, the slow rollout of physical stores has been a snag for the growth of the industry.

During a recent investment event held by financial firm Echelon Wealth Partners in Toronto, Canada, the marijuana retail space was the main focus of discussion.

At the “Insights Into the Cannabis Consumer: New Perspectives on Retail and Consumers Brands” gathering held on Tuesday (October 15), some of the cannabis industry’s most notable names spoke about their upcoming moves to establish retail presences both physically and online.

During a panel, Echelon Wealth Equity Research Analyst Matthew Pallotta described the current Canadian retail landscape as being a “hub and spoke system” that involves select large flagship stores surrounded by smaller storefront locations.

Nadia Vattovaz, chief financial officer at Fire & Flower (TSXV:FAF), said the hub and spoke model works for Canada as it’s able to service the country’s larger urban centers — which are mainly concentrated in a few key provinces and cities across the nation — with experiential spaces, while smaller locations can be established in less densely populated areas.

When it comes to smaller locations, National Access Cannabis (TSXV:META) CEO Mark Goliger said the increased use of technology, including tablets and other user screens, can support the operations of smaller stores by making them more efficient.

Goliger stated that one of the most important factors in choosing the site of a store, regardless of size, is convenience — another is location.

In the US, cannabis stores are subjected to strict zoning laws, said MedMen Enterprises (CSE:MMEN,OTCQX:MMNFF) Managing Director Vahan Ajamian.

The executive mentioned that the company had previously mapped out spaces in Los Angeles, California, that were compliant with zoning restrictions, away from schools, daycares and hospitals. It found only about 15 percent of the city’s square footage can be used for cannabis retail spaces.

That isn’t the case in Canada, according to Goliger.

“We’re in a much more positive type of environment (in Canada) where we can set up stores in these natural types of retail traffic patterns,” he said.

When it comes to the store approach, Columbia Care (NEO:CCHW) Chief Marketing Officer Bryant Ison said the company’s retail concept has changed as it has grown, with a focus on customer interaction.

“The consultative approach is one that’s really, really important to the secret sauce of Columbia Care,” said Ison.

Beth Stavola, chief strategy officer with iAnthus Holdings (CSE:IAN), spoke about the company’s new line of Be. stores, which will have a grand opening in Brooklyn later this year.

The iAnthus executive said “inclusion and unity” are key points in the conceptual design for the upcoming stores, giving the locations an inviting feeling for new consumers of cannabis.

Retail cannabis to be boosted by branding strategy

Branding has been a big part of the discussion in retail as well. Regulations vary greatly between Canada and the US, as the US has much more lenient rules around marketing cannabis products, but industry experts such as HempFusion CEO Ian DeQuieros say brands are where the money is at in the next phase of growth for the sector.

During the day's final cannabis panel, @HempFusionCaps' CEO Ian DeQuieros said profits in the industry won't be in cultivation moving forward. Instead, the money will be in distribution and consumer-facing brands. #cannabisnews #marijuananews

— Cannabis News | INN (@INN_Cannabis) September 21, 2019

The trouble starts with developing brand recognition.

“Right now there is no brand loyalty, so we do not see customers come in and specifically ask for brands,” Vattovaz said. “It’s pretty quick and easy to turn them to a competitive option.”

Vattovaz added it comes down to building a relationship with the customer.

During his keynote speech at the event, Bruce Linton, former co-CEO of Canopy Growth (TSX:WEED,NYSE:CGC), said the retail space has suffered, along with the larger cannabis industry, from an onslaught of bad news, including the CannTrust Holdings (NYSE:CTST,TSX:TRST) illegal growing scandal. It’s left a bad taste in the mouths of some consumers.

The key to improving cannabis’ reputation is making sure companies normalize buying marijuana products, Linton said.

“I think what we need to do is … give (consumers) great experiences,” he said. “Let them come in and be comfortable, have stores where they actually feel like they’re in control. Give them products in January that actually seem sensible to them that don’t involve combustion.”

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.