Panel: Canadian Retail Challenges Add to Black Market Advantage

Almost a year after the landmark legalization of cannabis in Canada, marijuana retailers still face hurdles when it comes to getting products to customers, some industry experts say.

During a panel at the MJBizConINT’L event in Toronto last week, players in the cannabis industry discussed the current state of the retail market.

Darren Bondar, president and CEO of Inner Spirit Holdings (CSE:ISH), said differences in municipal and provincial regulations can cause friction when a company attempts to open a store.

In Alberta, said Bondar, rules about where cannabis stores can be opened are different across the province’s municipalities; provincially, the Alberta Gaming, Liquor and Cannabis Commission (ALGC) requires a full due diligence process, including a series of inspections of the location right up until the store opens.

Bondar added that stores can only sell accessories specifically for the storage or consumption of cannabis, meaning that items like cannabis magazines or branded apparel can’t be sold.

In July, Inner Spirit announced its line of retail stores, Spirtleaf, received seven new licenses from the ALGC, for a total of 27 licenses in the province.

Lara Wood, the general manager of New Brunswick’s provincial distributor, Cannabis NB, said another challenge during the early days of legalization was due in part to unrealistic expectations between licensed producers (LPs) and retailers.

Almost immediately after legalization was announced last October, stores across Canada fell victim to supply shortages that initially caused customers to turn away dissatisfied.

Wood said Cannabis NB had only received approximately 19 percent of the product it first ordered for the launch of its stores and had to close locations at times due to the lack of supply.

Ontario, one of the biggest cannabis markets in Canada, has seen its own share of store struggles. The province recently held a second lottery for retail licenses, a process that came under fire for leaving the distribution of licenses down to luck.

Torkin Manes lawyer Andrew Wilder said Ontario’s current system could see some changes in the future as the cannabis market continues to grow.

“Maybe there’ll be another lottery, maybe the waitlisters will all of a sudden come to the top and they’ll be an opportunity for them. We just don’t know,” said Wilder. “There’s a lot of speculation out there in the market right now.”

Bondar added Ontario could “easily hold 1,000 stores without looking like the pot capital of the world,” which would help service customers and stamp out the illicit market.

Black market cannabis in Canada continues to outsell legal options. Data from Statistics Canada reported illegal cannabis cost C$5.93 per gram in the second quarter of 2019, almost half of the price of legal cannabis at C$10.65.

Though Bondar thinks more competition would be beneficial for Ontario’s cannabis market, he cautioned panel attendees that more competitors may result in a thinly stretched customer base.

“Today it’s exciting for a lottery winner,” he said. “In 12 months, you better have a good retail experience, because there’s going to be 100 (stores) around you, and you still gotta be able to pay the rent.”

Inner Spirit will get the opportunity to add to its Ontario retail network through two exclusivity agreements it signed with individuals selected in the most recent license lottery. The company has already been involved in the launch of a store in Kingston as part of the first round of lottery winners.

There has been a shift, though, that could represent stability in the marijuana retail space.

Wood said the shortage is slowly being rectified as LPs start to meet the demand for cannabis products. Now, she added, the market is largely consumer driven and Cannabis NB is looking to partner with LPs willing to help the chain fill the gaps in its supply.

“We’ve seen a really recent turnaround over the last couple of months where there is a lot of supply now,” said Wood. The New Brunswick representative added that it’s less a matter of not having any supply than it is not having the right products to meet the needs of customers.

Don’t forget to look for the rest of our coverage of MJBizConINT’L, with exclusive interviews and more insights from the show. You can also follow us @INN_Cannabis for real-time news updates!

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.