Too Many Cannabis Retail Stores? Provinces are struggling to find the right balance
It’s hard to say what makes a healthy cannabis market in Canada. The number of retail stores varies widely by province, and the subject of “how many cannabis stores are too many” pervades the country.
Part of the problem is that while Canada is legal at the federal level, its provinces control retail sales and differ in their approaches. Ontario, Alberta, and British Columbia lead the way in number of stores, and other provinces are rapidly gaining ground.
Ontario reaches 800 stores – and the number is rising
The Ontario Cannabis Store (OCS) announced that the province has reached 800 licensed retail stores. With the highest density of cannabis retail stores in the country, communities are reluctant to allow cannabis stores in their district.
The number of cannabis stores in Toronto has been a frequent subject of complaints from groups of non-cannabis business owners in neighborhoods with a high concentration of cannabis retailers and even from some previously licensed cannabis retailers.
Politicians are also torn over cannabis retail in their communities. Earlier this month, city councils in Toronto’s Mississauga suburb – Canada’s sixth largest community – voted 8-4 to continue allowing cannabis retailers to exit their city.
Mississauga is not alone in this approach: it is shared by nearly 70 other parishes across Ontario, including the adjacent suburbs of Toronto, Markham (328,966), Vaughan (306,233), and Richmond Hill (195,022).
Greater Toronto doesn’t have the same objections to cannabis retailing, however. The OCS lists 246 cannabis stores within 50 kilometers of the CN Tower, completely surrounding Mississauga.
This isn’t just a problem for Toronto and the surrounding GTA; many provinces are struggling with cannabis retail. Quebec, for example, does not allow privately owned cannabis retailing and operates its public retailer, SQDC, on the basis of legalization goals such as undercutting the illegal market.
Recently, Saskatchewan raised its limit on retail cannabis, which caused the number of stores in Saskatoon to skyrocket. As of the beginning of this month, the city of 325,000 had 24 stores and 8 more are on the way, which sparked similar discussions.
How many shops are too many?
Michael J. Armstrong, an economics professor at Brock University, says there are few measures in place for determining how many cannabis retailers are enough – as opposed to too few or too many.
Armstrong stated that there is no single way to pinpoint a healthy number of retailers as everyone expects different things from the cannabis retail trade.
One measure he cautiously suggests is to compare it to Colorado, which industry observers have described as the ideal balance of 1 business per 10,000 people. Armstrong doesn’t want to burden Colorado too much, however.
“Colorado is a legal island surrounded by states that are not legalized. Part of their business will be people driving across the border and entering from abroad. I’m not even sure Colorado has stabilized: It’s an unusual situation, ”said Armstrong.
“At least the Colorado model is a number, and until we find out what works in Canada, it’s a decent ballpark.”
Alberta is growing rapidly with over 600 stores
Another example of an ideal ballpark could be Alberta, which Armstong said is the fastest province to license stores in a limitless private sector retail environment. After legalization, Armstrong said, Alberta “rose to the high 400s pretty quickly. They are now just over 600 stores. It’s not completely stabilized, but it has certainly tapered off. “
“They had closed a few stores, but it was still a month-on-month net income. A little over 500 for a population of just over 4 million. At least in the short term there is a Canadian ballpark, at least for the private sector. “
The Atlantic provinces have reached a point of equilibrium, he said, but, “Quebec is not there yet: they are expanding slowly and steadily. Alberta has passed that point, I’m sure of it. Ontario still has a way to go. ”
Clustering may not be that bad after all
When the cannabis retail sector is discussed, the most likely source of controversy is the issue of clustering, where cannabis retailers open in close proximity to one another.
Concerned citizens worried that neighborhoods would be dominated by cannabis retailers long before legalization. While some continue to complain about the problems in certain areas, Armstrong said clustering shouldn’t be understood as bad.
“Clustering just happens. We notice it because it’s new: first there’s a cannabis store, and it’s new. Then there are five! But then you ask yourself: “Where are the coffee shops? Where are the restaurants? ‘ They are often clustered. “
“In a year, Ontario should be around 1,700 to 2,000,” said Brock University Professor Michael J. Armstrong.
The herd will eventually exterminate itself
The difference between restaurants and cannabis stores is that each restaurant can offer something different, such as the type of food you eat or the type of cooking.
In Canadian cannabis retail, there are few parallels to where retailers in most provinces, except Saskatchewan and Newfoundland, have to buy from the same pool of products as other retailers.
What stands out from the crowd is how cannabis retailers can survive the cull. “That will also be part of a [healthy] Ecosystem when you get that kind of differentiation, ”Armstrong said.
Armstrong suspects there will be store closings in Alberta, and perhaps other provinces at some point, and warns that many factors play a role: “I think they are above the number they will have in the long run.”
One factor that nobody predicted was the coronavirus.
“People are ready to stick with mediocre profits as they wonder how long this pandemic will last and whether their competitors are going out of business,” Armstrong said. “My guess is that this number will eventually go down, especially with larger chains.”
Echoing Armstrongs’ predictions, the OCS released an “Annual Review” in which the President’s interim President and CEO David Lobo stated, “Unfortunately, this rapid growth will likely result in some retailers facing increased competition and a crowded marketplace are leading to some closings and market adjustments. “
Only time will tell what the future holds for cannabis retail in Canada. Regardless, Canadians should get used to seeing cannabis stores as prevalent as coffee shops and liquor stores.
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