Top 3 Ontario Cannabis Retail Trends That No One Predicted
It’s been just over two years since cannabis prohibition came to an end and it’s safe to say that if the hippies that kicked things off in the 60s could see the cannabis landscape today, their minds would be blown – and not in a groovy kind of way. When the idea of ending cannabis prohibition started to get serious, many of us struggled to wrap our heads around how it would work. Will it be treated like alcohol or cigarettes? The answer is both and neither, and a lot has changed in these two short years since cannabis legalization.
I’m not sure if you remember, but day one of legalization in Ontario was an epic failure. The newly formed OCS (Ontario Cannabis Store) was positioned as the sole distributor of cannabis products and only a handful of licensed producers (LPs) were set up to supply Canada with “that good-good”. We quickly learned that people didn’t want to buy cannabis online. This product was brand new and whether you were a novice or experienced, we all wanted an in-person customer experience. Under-performing online sales and a Canada Post strike helped clinch the decision to allow private retailers the license to sell “the sweet stick-icky”, all you had to do was win the lottery.
3. Lottery roll-out allows corporate companies with deep pockets to eat up the market.
That’s right, 50 Ontario licenses were up for grabs and everyone and their cousin was buying a ticket. Let’s fast forward. After the lottery, big investors went into bidding wars with the winners to purchase their licenses. Some sell, some don’t. The first private retail shops start opening in Spring 2019 and get a huge head start in the market. A second phase of licensing occurs in August 2019, and it’s another lottery. This time applicants are required to have $250k in available capital to qualify and these wealthy winners are vying for 1 of 42 licenses. This second lottery would be the last, and the AGCO creates a queue from the remaining applicants, all waiting for their license to roll-out in random batches at an unknown future date.
Now, take a deep breath and relax because the AGCO soon realized what a mess they created, and Ontario decided to do away with these lotteries in favour of an open market to launch by March 2020. And so, as the cannabis retail market opens, the world closes up shop to help combat the spread of COVID-19. Over the following year, big investment cannabis corporations are quick to dominate the online market and grab a large percent of online sales by capitalizing on Google SEO search engine rankings. At the same time, small business owners who dumped all their money into a beautiful store are, like so many others, closing up and selling. And guess who’s got the money to buy? Big corporations that already have a massive share of the market.
Recent news indicated that the AGCO plans to start awarding retail licenses at a rate of 30 per week, with a goal of 1000 new shops for 2021. This means the “mom and pop” shops that are already struggling, are about to have a lot more competition. Any shops that can’t survive will be purchased by companies looking to further increase their footprints in the market.
Small businesses could level the playing field by building brand awareness with a great ad campaign or some effective social media, except strict marketing restrictions on cannabis make this practically impossible.
2. Marketing restrictions force businesses to rely on their locations for brand awareness.
One would assume that since recreational cannabis is enjoyed much in the same way as alcohol, that their respective marketing regulations would be similar. Wrong! Though a majority of adult Canadians were in favour of legalizing “whacky tabacky” there were still a lot of nay-sayers out there. MADD and the Government of Canada jumped into action to make sure that the only cannabis information a minor could access was warning them of the dangers of “the devil’s lettuce”. You can find all of the rules and regulations on Health Canada’s website but I’ll save you the trouble.
Non age-gated spaces: nothing but your logo no bigger than 300cm2.
Age-gated spaces: informational and educational promotion only; no lifestyle promotion and no emotional or medical claims.
In other words, brands like Molson can sponsor our hockey teams and put out commercials where beautiful people are having a blast with a cold beer in their hands, and cannabis brands can show you a little logo.
What about social media? We’ve all come to grips with the fact that social media is here and there’s nothing we can do about it. And despite it’s darker side (rigging elections, causing depression, and rallying people together for dangerous reasons) it’s an easy and affordable way for businesses to brand themselves. Digital marketing budgets for social media have skyrocketed over the past decade and these platforms have become crucial during the COVID-19 stay-at-home way of living. This is why it was a huge blow to these “budding” businesses when Facebook decided to crack down by disabling and deleting legal cannabis accounts on Instagram at the end of last year.
With no way to effectively get the word out about their business, cannabis retailers must rely heavily on their physical location to attract customers. With cannabis shops popping up in record numbers and foot traffic being at an all time low due to COVID-19, expect to see some wild marketing tactics outside these storefronts this summer.
1. The pandemic fast tracked online shopping and delivery from private retailers.
It goes without saying that COVID-19 has shaken up the world. In many cases, the pandemic has crippled or collapsed businesses entirely, so it may be a surprise to hear that the Canadian cannabis industry is booming. A large reason for this is that the black market continued to be a major competitor during the first year of legalization. Putting cities in lockdown and allowing local cannabis retailers to offer free same-day delivery was all it took to push a large number of these black market customers into the legal market.
The increase in retail cannabis shops across Ontario is another contributing factor. Increased access to legal cannabis has lured potential customers away from the black market and inspired newcomers to give it a try. Another speculation is that people are just straight-up consuming more “jazz cabbage”. It makes sense, and alcohol sales have increased as well. People are staying home and that’s boring. Regardless, cannabis delivery is temporary and the vaccine is here, whether this pandemic boost to the cannabiz will be a lasting trend is unclear.
What’s the future holding?
Here’s what we know:
More cannabis shops will open in Ontario this year than the first two years combined.
The US is moving towards legalizing cannabis federally in the very near future.
The industry is showing no signs of slowing – pandemic or not.
From this we can speculate that independent shops will continue to struggle with the competition and that big corporations will continue to grow their footprints in the market while buying up the competition along the way. US cannabis companies getting into the mix will add more big corporations to the Canadian industry and they will be competing for majority market share across North America. Once the US declassifies cannabis as a Schedule A narcotic, Facebook and Instagram will adjust their community policies to allow more cannabis content and marketing. Finally, the pandemic will be over eventually and customers will move from the web to the streets again raising the value of their locations.
I do, however, think there is a dark horse that we’re overlooking that is micro grow licenses. The current process for obtaining a micro grow license is complicated and expensive. However, prior to the pandemic the government of Canada was working towards issuing upwards of 13 new licenses per month. With independent craft growers and independent retailers vying for space in the market, the future looks much like the beer industry.
Imagine big corporations that focus on accessibility, affordability, and scalability, and a diverse craft cannabis scene thriving in local communities. So long as passionate people are out there making noteworthy products and offering a world class customer experience an independent cannabis market is conceivable. If the past year has taught us anything it’s the power of voting with your dollar, the benefits of supporting local business, and that together we can do pretty much anything.