Will This Help The Industry?
If you’ve followed us for a while, either here on the blog or in our email newsletter (click here to sign up) you’ll know that the first five years of legal cannabis has been a little bumpy. One of the areas that has been inconsistent across the country is the limit of dispensaries that anyone can own.
In Alberta, for example, there are no limits and in British Columbia the limit is 8 stores only! Ontario started with a limit of 75 and has just recently announced that the cap will be lifted to 150 stores per owner. As a consequence there’s been a rash of media stories and conflicting views from various independent and corporately owned cannabis stores. To help you make sense of it all, we created this round-up of the stories with a quick review for each.
Full disclosure: We are independently owned and operated and have a strong view that all cannabis regulations should be written with small businesses and consumer experience in mind.
Ontario Government Announcement
The media firestorm kicked off late last year when the Government of Ontario announced, along with other regulations, that the dispensary cap would be lifted:
“To respond to the growth of the legal cannabis retail market and combat illegal cannabis stores, the province is making amendments to Ontario Regulation 468/18 under the Cannabis Licence Act, 2018 to increase the number of stores that licensed retail operators and their affiliates can operate from 75 to 150.”
MJBIZ
This article, by Solomon Israel, does a great job at laying out the opposing sides to the debate. On one hand there are small and medium sized retailers who may be interested in selling to a larger operator, but the latter faced challenges with the 75 store limit. The new rules should permit more consolidation in the industry.
On the other hand there are many issues with the regulations that could help smaller operators other than turning their stores into a lunchbox for a corporate chain. It goes without saying that this type of consolidation in other industries hasn’t always benefited consumers. Our very own co-founder kicks off the coverage:
“Lisa Bigioni, CEO and co-founder of independent Ontario retailer Stok’d Cannabis, said some local media interpreted the regulatory change as meaning more stores will open overall. ‘I don’t necessarily think that’s the case, she said. I don’t think there’s really much room for that many more stores. But I think it opens up [the] opportunity for smaller stores to potentially be purchased.’
Large, corporate chains are poised to benefit most from the increased store ownership cap. ‘Right now, this cap change really only helps five or six of the large retail (operators),’ said Eric Chittim, vice president of supply chain with privately held retailer True North Cannabis Co., which operates 50 stores. Publicly traded retailer High Tide, with 54 stores in Ontario, is one that stands to benefit.’
However, stores aren’t necessarily worth as much as they were in early days of marijuana legalization, when licenses were limited. An opportunity to get acquired ‘can be really good for small chains that are interested in selling for whatever reason,’ said Bigioni, whose independent chain Stok’d has four stores. ‘I think it can be a wake-up call for some other small independents that might think they’d like to be purchased,’ but might be offered less than they think their stores are worth, she added.
Global News
This story has exploded outside of the inside baseball of the cannabis industry news into the mainstream press. This report by Global News focused on the independently owned dispensaries and how the new regulations might impact them/us:
“Small cannabis retailers are calling on the Ford government to reconsider recent changes to industry rules that some businesses fear could crush mom-and-pop operations in Ontario.
In a New Year’s Day regulation, the Ontario government increased the cap on the number of stores a licensed company can operate in the province from 75 to 150. According to the province, the change was designed to ‘further support a healthy and competitive’ cannabis industry in Ontario. Independent retailers, however, fear the change will only benefit a select few businesses that are already beginning to dominate the fledgling cannabis industry.
Adam Vassos, president of the Retail Cannabis Council of Ontario, told Global News the changes had not been requested by small cannabis business owners, which make up the majority of stores in Ontario. Vassos said of roughly 1,800 stores in the province, 1,600 are operated by independent, small business owners. He said the changes offered no benefit to those small stores. ‘There’s too many other urgent matters that are out there for us,’ he told Global News.”
Vassos said the change was a signal from Queen’s Park that small businesses are not a priority. “When Ontario says they’re open for business, what they really mean is, ‘We’re open for big business but if you’re a mom-and-pop (store), we’re not interested in really doing anything for you,’” he said.
Mugglehead Magazine
This is a great overall description of the issue from both the independent and corporate perspective on the store cap increase:
“The revised ownership cap stands as a turning point for Ontario’s cannabis industry, offering a unique opportunity for major retail chains to assert dominance. The revised ownership cap in Ontario is a game-changer for the cannabis industry, offering major retail chains, like High Tide…with 54 stores, a unique opportunity for dominance. Large corporate chains, especially High Tide, stand to benefit significantly.
Eric Chittim, VP of Supply Chain at True North Cannabis Co., agrees the cap change primarily benefits a small number of large retail operators. Omar Yar Khan, Chief Communications and Public Affairs Officer with High Tide, however, said the cap increase levels the playing field against major cannabis retail franchises.”
Slightly biassed factcheck 😘: High Tide (aka Canna Cabana) currently has the most number of stores in Ontario with around 55. The closest franchised operations, Sessions, having 15 stores less, so we’re not sure if we agree this new policy will indeed “level the playing field” 🤔
BNN Bloomberg
If you think the big guys aren’t getting enough love, this article and interview will definitely make you happy. They certainly do a great job at laying out why the increase in caps will benefit corporately owned dispensaries:
“Gennaro Santoro, senior director of strategy at EY-Parthenon, told BNNBloomberg.ca that most operators in Ontario’s saturated cannabis market weren’t able to hit the previous limit of 75 stores, so the increased retail store cap will only make a difference for a select few players.
Firms that execute on this approach will see opportunities to improve market share by acquiring assets as companies go into receivership or credit protection, Santoro said. In order to be successful in the current environment, Santoro said companies should pick areas to differentiate as they compete with other legal and black market cannabis operations.”
Global News
What began as a change sending ripples through the industry erupted into national news when it emerged that Loblaws was lobbying the Ontario government to enter the cannabis retail space. The news of Loblaws possibly lobbying for their inclusion into the industry was, to say the least, met with some suspicion by industry stakeholders:
“As the Ford government ushers in new cannabis regulations that could dramatically scale up the number of licensed pot shops in Ontario, Global News can reveal that grocery store giant Loblaws has been pushing the province for legal changes that would allow the supermarket giant to enter the bud business.
Harrison Jordan, managing lawyer at the firm Substance Law, said the changes would likely ‘disproportionately’ benefit big-box retailers more than small retailers. The Ontario NDP’s critic for consumer protection Tom Rakocevic, told Global News that if Ontario granted Loblaws’ requests, it ‘won’t be the first time this government makes crucial public policy to favour big corporations.’
He called for ‘transparency’ in the process and said the Ford government was ‘tipping the scales in favour of big box and chain stores’ through policy changes. ‘Communities need to have a say in the future of cannabis retail in their neighbourhoods,’ Rakocevic said.”
Cannabis Retailer
Going into a little deeper dive on the actual request by Loblaws was said to make, Cannabis Retailer does a great job outlining the stakes (or steaks in Loblaw’s case 🥁) of what it could mean if a giant retailer like Loblaws got into the game:
“Currently, regulations from the Alcohol and Gaming Commission of Ontario state that, “There must be separation between your cannabis business and other businesses. The retail space where you will sell cannabis must be enclosed by walls separating it from any other commercial establishment or activity.” But Loblaws wants to change that.
The primary changes they have requested include:
- Repeal restrictions on cannabis sales at establishments that also sell food and snacks
- Allow store-within-a-store models similar to how some wine stores have locations within Loblaws grocery stores
- Repeal a ban on online retailers from selling cannabis goods
- Change rules to allow medical cannabis dispensaries to also sell recreational cannabis
Loblaws currently operates two medical dispensaries under the company’s C-Shop brand, with one in Embrun, Ontario and another in North Bay, Ontario.”
Will Lifting The Dispensary Cap Help Anyone, Really?
There’s really a lot we can say, and we do 😉, about the regulations legal dispensaries face in Ontario. Ultimately we don’t think that raising the number of stores any one owner can hold will make or break the industry. However, the speed of both passing the bill and implementing it within 40 days shows that regulators can work quickly when they want to. Indeed, it’s surprising how quietly this bill was kept for everyone except the lobbyists and lobbied. It was a big secret and came out of nowhere to most of us. What is yet to be seen is if they’ll use their powers to help the independent retailers as well as the corporate ones.
Shameless Plug
We are slowly building our cannabis retail franchise program, brick-by-brick (so to speak 😂) and we are excited to expand our unique brand and reputation to your community. If you’re keen to know if a Stok’d franchise would be a great investment for you, click here.