HERB N’ SPRAWL: Independents fight for elbow room in cannabis market

Canada’s legal weed industry needs innovation, not more regulation, say entrepreneurs

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Despite his success, Samuel Gerges has a hard time even opening a business account.

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“No bank will touch you, even if you’re just trying to buy a house,” says Gerges, owner of MaryJane’s Cannabis in Toronto.

“If your income is cannabis-related, they won’t even look at you.”

Just weeks after Canada’s third anniversary of legal recreational cannabis, the country — particularly at the local level — is dealing with the realities of a post-legalization world.

One concern that’s made it all the way to Queen’s Park is one of concentration — not some new especially potent strain making the rounds — but the problem of retail.

“This is an emerging industry, and for a number of years I’ve been an advocate,” says Toronto  Councillor Kristyn Wong-Tam.

Last week, she successfully convinced city council to back a private members’ bill calling for a one-year moratorium on new retail cannabis licenses until municipalities get more control over where new stores pop up.

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My concern is our main streets are a microcosm of the neighborhood, and we need to build these neighborhoods.”

Legal cannabis products for sale in Toronto
Legal cannabis products for sale in Toronto Photo by Bryan Passifiume /Toronto Sun

She wants cities to have the same oversight over cannabis licences as they do with liquor licences — issued by the province, but cities get a say in their approval.

Today’s reality in Toronto, Wong-Tam says, is concentrations of cannabis shops spread unevenly throughout the city.

In Little Manila — a 400-metre clutch of Filipino stores and restaurants along Wilson Ave. at Bathurst — there are no fewer than five cannabis stores.

Five stores also compete for trade along Avenue Rd. — from Hwy. 401 to Lawrence — with six along the same stretch one block east on Yonge St.

Gerges, speaking to the Toronto Sun from inside his flagship Etobicoke store on The Westway, isn’t confident a moratorium is the way to go.

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“It’ll play itself out,” he insists.

“People not meant to be in the market, who can’t keep their customers happy, will close their doors.”

Wall art inside MaryJanes Cannabis in Toronto
Wall art inside MaryJanes Cannabis in Toronto Photo by Bryan Passifiume /Toronto Sun

He’s one of a handful of independent players making their mark in Toronto’s legal pot scene.

Opening last year in a former bank, MaryJane’s has become a sleeper hit — listed by the OCS (Ontario Cannabis Store) as Toronto’s top-performing Cannabis store by retail sales in their year-in-review report.

MaryJane’s second location, on Weston Rd., opened in April.

Gerges admits concentration is an issue, but says customer service will be the biggest deciding factor in who survives.

“We have five (stores) within three kilometres of here,” he adds. “It’s so many people in a little area, in one flow of traffic — and yet we’re doing OK.”

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Gerges, however, recognizes he’s a small fish in an ocean dominated by enormous players.

As of June 30, Ontario’s three biggest players are Spiritleaf (owned by Calgary-based Sundial,) Tokyo Smoke (Canopy Growth) and locally-owned Sessions — each owning at least 30 locations.

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“One thing about this business — you’re going to get big, or you’re going to get bought.”

That’s the belief of Dave Dormer — a Calgary-based journalist and operator of Cannanaskis, a tour company specializing in the history and appreciation of cannabis — who thinks Canada’s headed in mostly the right direction.

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“The legal market is creeping up on the black market in terms of volume,” he says while explaining that while illegal sales will always happen, Canada’s legal marketplace will supplant it.

Dave Dormer, owner of cannabis tour company Cannanaskis, in Calgary, Alta.
Dave Dormer, owner of cannabis tour company Cannanaskis, in Calgary, Alta. Photo by Gavin Young /Postmedia Network

What Dormer wants to see is the growth of cannabis tourism — and that begins by growing frameworks on public use.

Calgary’s public-consumption prohibition prompted Dormer’s to partner with privately-owned attractions  — Cannanaskis’ flagship tour largely takes place, after public hours, at Heritage Park via a partnership with the beloved city landmark, allowing tour-goers to toke-up legally.

Back in Toronto, Gerges’ day is occupied with the unique challenges faced by “weed-tailers” — like requiring dedicated door staff.

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As for long-term survival, he says big players have advantages over independent operators.

“A lot of these producers lose millions a quarter just to say competitive, and keep things priced in a way that appeals to consumers,” he adds.

“They’re all going to 10%, 15% gross margins — which isn’t sustainable for even above-average stores.”

But with everything he’s sacrificed to get to the top, Gerges says he’s ready for battle.

“It’s not an easy business,” he says.

“You’re fighting everyone.”

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DANK DYNASTY: ONTARIO LEGAL CANNABIS ON THE GROW

While most Ontario cannabis transactions still take place on the black market, legal sales volume nearly doubled over the past year.

In this year’s second quarterly report from the Ontario Cannabis Store (OCS,) the province’s legal market share increased from 25.1% in the first quarter of 2020 to 47.1% a year later.

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Ontario remains Canada’s biggest player in legal cannabis, amounting to 36.2% of the country’s total market share.

Alberta came a distant second with 18.7%, followed by Quebec (15.7%) and B.C. (14.3%.)

Ontario’s 834 legal cannabis shops sold 42-million grams in the first quarter of 2021, worth $307 million in sales.

Both analysts and retailers agree the key to fighting the black market is competitive pricing.

Dried flower — which made up 56% of legal sales last quarter — dropped to an average of $6 per gram on the government-run OCS.ca and $8.28 in stores.

Prices on the illegal market, OCS claims, dropped from $9.59 to $8.51 per gram in the first four months of 2021.

It wasn’t until the fourth quarter of 2020 that legal prices fell below black market — a first since legalization.

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CANNABIS STORES BY CITY:

  • ONTARIO: 834
  • TORONTO: 255
  • BRAMPTON: 19
  • MISSISSAUGA: Retail banned
  • HAMILTON: 38
  • OAKVILLE: Retail banned
  • BURLINGTON: 15
  • OSHAWA: 14
  • PICKERING: 3
  • WHITBY: Retail banned
  • VAUGHAN: Retail banned
  • RICHMOND HILL: Retail banned
  • NEWMARKET: Retail banned

Source: OCS Q2 2021 report

bpassifiume@postmedia.com
On Twitter: @bryanpassifiume

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