Licensed cannabis producers looking to set up retail locations at their production sites in Ontario will likely face many challenges when it comes to attracting visitors to their small-town and rural locations, given certain restrictions that don’t apply to wineries and breweries. The onus, therefore, will be on cannabis companies to offer an on-site experience that will be better than just buying the product online, or at a nearby store.
Under the province’s recently proposed legislation, which remains murky in parts, it’s expected that cannabis consumers will not be able to try products at retail locations, including so-called “farm gate” operations, which is where products can be sold and consumed in the same location where they’re produced. Cannabis production sites are also highly regulated under federal laws, and often require security protocols for visitors, which could make it impractical for companies to provide extensive tours of their production facilities.
“It does create a headwind for the LPs in terms of trying to monetize the retail segment,” says Eric Foster, a partner at Dentons, who runs the law firm’s cannabis practice. "That said, cannabis companies have a proven track record of being creative in a highly regulated industry, so will find ways to be successful within the new Ontario framework.”
Ontarians won’t be able to buy cannabis in bricks-and-mortar stores until after a retail framework is set up by April 1 next year, which gives LPs time figure out the new rules and develop a retail plan. (They will be able to sell recreational cannabis online in Ontario starting on Oct. 17, when it becomes legal). The proposed Ontario law would restrict marijuana producers and their affiliates to operating just one retail store at one production site. It is still unclear whether a grower could take a minority stake in a retailer. The issue is expected to be clarified once the province defines the term “affiliates” in regulations expected to be issued by the end of the year.
Cannabis companies looking to set up stores at their production sites can learn from the dozens of wineries and craft breweries that have created tourism destinations around their brands by adding extras such as restaurants, art exhibitions and concerts. Examples include the 500-seat, outdoor Jackson-Triggs’ Amphitheatre located at the Niagara Estate Winery in Niagara-on-the-Lake, Ont., which puts on concerts each summer. Steam Whistle Brewing hosts art exhibitions at its gallery in downtown Toronto, among other events.
“If I was running one of those big brands, it would be all about the consumer and how to create a different experience that defines my brand and can’t be replicated easily by anyone else. It’s all about consumer experience marketing,” says Hill Street Beverage Co. Inc. CEO Terry Donnelly, who spent three decades in the marketing and advertising industry working with alcohol brands, including some farm gate operations.
Part of the strategy should also be to demystify the production of cannabis, he says. “I think what we are going to see is these greenhouses become centerpieces of the brand strategy as opposed to something in the back with a chain-link fence around it,” says Mr. Donnelly. He said Hill Street Beverage is considering setting up a retail location at its production site, once edibles are legalized, which is expected next year, as well as at any other locations it opens in the future – as permitted by law.
The Ontario model is also a chance for producers better educate consumers about the use of cannabis, which remains controversial despite pending legalization later this month.
“Now that it’s coming into the public legal realm, there’s a lot of work to do in terms of education and building confidence and trust with consumers that this is a legitimate, safe, consistent product,” says Sybil Taylor, the former head of marketing and first employee at Steam Whistle Brewing, which was co-founded by her husband Greg Taylor.
For instance, Ms. Taylor says they will be able to learn about the different cannabis strains and how to consume the plant responsibly. Brands will also be able to get in-person feedback from consumers on their products.
“It’s a huge boon for the industry that this is being allowed,” says Ms. Taylor, now the chief marketing officer at medical-focused firm MediPharm Labs Inc.
“That’s really valuable not just for the individual brands, but society as a whole because this is a nascent industry and we have a lot to gain from it, particularly Canada on the forefront globally.” She says MediPharm doesn’t currently have plans for a retail operation at its Barrie, Ont., facility, but may be interested for its future satellite facilities being contemplated on the east and west coasts.
Canopy Growth Corp. is ahead of the game for setting up a retail location at its Smiths Falls, Ont., facility, which recently opened a visitor centre that includes exhibits that educate about the history, science and culture of cannabis.
David Bigioni, Canopy’s chief commercial officer, says the plan is to sell cannabis at the site, and potentially at one or more of its other production facilities in Niagara-on-the-Lake, Scarborough and Bowmanville, Ont. – if the legislation permits.
A Niagara-on-the-Lake store will be particularly attractive given the area is a destination for wine enthusiasts that may be looking to expand their palettes to cannabis. “There would be a lot of parallels there between cannabis and wine,” as a tourism experience, says Mr. Bigioni, a former sales and marketing executive at Molson Coors.
The proposed provincial rules also give municipal governments in Ontario a one-time window, until Jan. 22, 2019, to opt out of allowing cannabis stores. Companies are quick to point to the employment and tourism boost that having a retail store at their production site could bring.
Nick Dean, CEO of Emblem Corp., says his company is considering opening a “small destination store” on the site of its facility in Paris, Ont., about 110 km west of Toronto. He said the company will discuss its plans with the municipality.
“These are things we are still working out in terms of what will provide the best experience, what’s legally going to be allowed, and what the town would want to see,” says Mr. Dean, a former advertising agency executive who has worked with wineries and craft breweries in his previous career. “You want to make it a destination spot that brings to life the brand’s values but offers more than a just a retail experience. You want it to be something people can really enjoy, to make the drive worth it.”
And while cannabis can’t be consumed in the retail stores, Mr. Dean says the plan is to offer education about consumption. “We have to be responsible. We are introducing these products to Canadians for the first time, legally. Many people will be experiencing these products for the first time. We have a duty to Canadians to inform them, to educate them,” Mr. Dean says.