Legal cannabis brands have little consumer recognition; supply is getting better, but LPs aren’t growing enough high-THC weed; the stigma of buying cannabis is alive and well.
This is according to the heads of four cannabis retail chains who spoke at a conference hosted by Eight Capital and Cassels Brock & Blackwell LLP in Toronto last week.
The four CEOs – Trevor Fencott of Fire & Flower, James Burns of Alcanna, Mark Goliger of National Access Cannabis and Theo Zunich off YSS Corp. – spoke of a steadily improving retail landscape, but one still kneecapped by bad policy and a lack of quality supply.
Here are some key insights into the state of cannabis retail from their panel discussion:
High-THC flower and pre-rolls are hot:
Mr. Goliger (NAC): "A lot of people come in looking for one specific thing: high-THC flower. We were expecting people to come in looking for certain brands, looking for certain strains, looking from a well-educated perspective. That really hasn’t been the case.”
“The other shock that surprised us is how irrelevant online sales is… People are coming into the store for their purchasing, and I think it has a lot to do with event-based purchases: they’re buying for same-day consumption, or from a convenience standpoint, as it’s part of their normal drive [to or from work]."
Mr. Zunich (YSS): "The demand for pre-rolls was something we kind of suspected: people love the convenience factor of it. But the extent to which that happened was definitely impressive. [Also surprising] was the lack of demand on the oil side of the business.”
Are there any popular brands?
Mr. Goliger (NAC): “Brands don’t exist yet; there’s zero brand recognition that exists in the market today.”
Mr. Burns (Alcanna): "I’ve been asked a few times this morning in the breakout sessions, ‘which brands are ahead?’ And there’s really none.
“For the first nine months, it was just about what product we get, if any... So the customers were trained come into the store and say, 'what do you got? I’ll take it.’ It’s going to take a while for brands to establish themselves, now that the brands are reliably available.”
What makes products move?
Mr. Fencott (Fire & Flower): “The price elasticity of customers; as a few of the wholesale prices have come down, it’s reflected in the retail price, and it makes a big difference whether the product moves or not.”
Mr. Zunich (YSS): “It’s finding that right quality-price equilibrium, and when brands hit that properly, they move quickly... We get a case of some of these products, and it disappears in a day. “
What’s the supply situation?
Mr. Goliger (NAC): “It’s not dire, but it’s not what we need it to be. High THC flower is really what the consumer of today is looking for. It’s not that there’s not a market for other products, it’s just when you look at people coming in to our store, what they’re asking for is high-THC flower… And then there’s diversity: right now there’s not enough being supplied by enough of the suppliers out there. It seems right now that they have a heavy weighting of supplies coming in from a very small group of LPs.”
Mr. Fencott (Fire & Flower): “I’m a little jaded. I struggle to understand that in the [Health Canada] stats there’s 240,000 kilograms of in-process inventory. I don’t know what that represents. How has that not been able to make it into the market?
"I don’t know if there has been a supply crunch at the provincial distribution node, but I’m interested to see where this 240,000 kilograms goes, because it’s clearly there. But to your point, if it’s 5 per cent THC it’s not going to do us a lot of good. We need the licensed producers to be producing high-THC products.”
Stigma is still strong
Mr. Burns (Alcanna): "The stigma is still very strong... and that’s among people who are using. The number one question we hear at our Queen Street [Toronto] store, anecdotally at the tills, is ‘can I have plain bag?’ They don’t want a bag with Nova Cannabis on it.
“Our percentage of cash sales is huge [around 40 per cent]. People don’t want to give their credit cards, they’re afraid the U.S. government is going to go access their Visa statement and see they bought cannabis; it’s a little paranoid, but that’s a very real fear in the marketplace.”
What are the best markets?
Mr. Fencott (Fire & Flower): “People say I have an irrational love of Saskatchewan, but I do love Saskatchewan... You can buy directly from licensed producers... you can do direct-to-consumer online... you can also do things like same-day deliveries. It’s the only province where we can compete effectively with the black market in terms of delivery modalities."
Mr. Goliger (NAC): "If you’re looking just at gross revenue, then Ontario is going to be a massive opportunity... I’m not sure what the margins are going to look like, because we know that Ontario is quite aggressive in how they do their purchasing and distribution to retail, but I do assume we’ll be somewhat in line with other provinces.
"We do know that it’s likely to open up relatively soon, within a matter of months not years. People who already have stores here in Ontario are doing massive numbers in their little oligopoly of today, and I think the market can bear a tremendous amount of stores in Ontario and still have each store... doing well north of $3- $5 million in sales.”
Provincial middlemen aren’t helping things
Mr. Burns (Alcanna): “The consumer is the loser and the taxpayer is the loser. Taxpayers in Alberta are buying cannabis: it’s nonsensical. There are bureaucrats making decisions about what the market wants with no contact with the market... and I think we all know for a fact, with access to the secret numbers, there’s a lot of stuff in the vaults in St. Albert that they can’t sell, that they bought, made a mistake, and the taxpayers are stuck with it.”
Mr. Zunich (YSS): "I know the AGLC is actually holding meetings this week with retailers to figure out what that proper inventory looks like... I think more communication from the consumer up the chain is going to help the move market; it’s all about capturing the black market and we’re not capturing enough of it yet.”