If you live or work in the City of Toronto you will have noticed by now how many cannabis retail stores have popped up since legalization occurred in the province. This article takes a look at the saturation of the cannabis retail market in the province and in the City, and what this could mean.
In late 2018, many aspiring cannabis retailers signed leases across Ontario post-legalization in preparation for their authorization, in the hopes they could be some of the first to open their doors. However, in December 2018, the Ontario Government announced a cannabis supply shortage and scrapped their initial plan allowing companies to open as many as 75 storefronts each. Instead, they capped the overall number of stores permitted to open at 25 and introduced a lottery system to allocate these limited licenses for applicants who pay a $75 fee.
At this point in time, many of these entrepreneurs had already signed leases and written up floor plans; but unfortunately, none of these elements were taken into consideration in the lottery system. This left some businesses locked into multiple leases, and no idea when they would be able to move forward with their plans. It wasn’t until a year later in December 2019 when the Ontario Government announced it would be scrapping the lottery system and replacing it with an “open allocation system.”
Figures 1, 2 & 3 – Hot Box Cafe/ Cannabis Culture/ Nova Cannabis
From December 2018 to December 2019, while Ontario was limited to 25 retailers (including the government-run online store), other provinces such as Alberta authorized over 300 cannabis shops to open their doors to the public. Even still, according to Statistics Canada, in this same year, Ontario’s cannabis sales were the highest of any province at $216M. This is unsurprising due to Ontario having the largest population of all the provinces. However, according to an analysis carried out by The Cannalysts Inc., the province lost out on $325M in economic activity and about $50M in tax revenue by not having as many retailers as Alberta.
These changes in policy allowed for more companies to obtain licenses and store authorizations from January until the end of August 2020, and permitted retailers to own a maximum of 10 stores, which would increase to 30 a year later, and then to 75 by September 2021.
After this stalled rollout, the province announced their aim of approving dozens of licenses each week with a goal of having 1,000 stores open by the fall. This was bittersweet news for many, as the idea of increased competition, especially during a pandemic, had those already established in the industry nervous about the results of this rapid market expansion.
Now in July 2021, while the government has not updated the public on their progress for the province, the Alcohol and Gaming Commission of Ontario (AGCO) has a publicly accessible page titled Status of Current Cannabis Retail Store Applications and an ArcGIS map illustrating some of this information. From these sources, we were able to ascertain that within the municipality of Toronto, 160 cannabis shops have been authorized to open, 98 public notices for new shops have been issued, and 19 applications are in progress as of July 12, 2021 (see figures 4-6).
Figures 4, 5, & 6 – Authorized to Open/ In-Progress/ Public Notices
This illustrates a high saturation of the local market and has caused the Ontario Cannabis Store (OCS) to predict the closure or sale of numerous storefronts. In an annual report released at the end of June, David Lobo, the interim president and chief executive of the province’s cannabis distributor, commented that shops are expected to encounter plenty of rivals as the government gets closer to its goal of 1,000 new cannabis stores. “Unfortunately, this rapid growth will likely result in some retailers being faced with increased competition and a crowded marketplace, which could result in some closures and market rightsizing,” he wrote. “At the core, all retailers will be challenged to further drive a relentless focus on targeted consumer segments and differentiating themselves from others.”
Looking forward, Lobo also expects many retail stores to participate in mergers and acquisitions to increase both their size and scale in order to reduce their operating costs. Additionally, he predicted the market will see even more consolidation as the number of cannabis producers goes beyond the domestic demand.
Mimi Lam, the owner of the cannabis retail chain Superette, has expanded her storefronts from her first shop in Toronto’s Summerhill neighbourhood to 4 storefronts in both Toronto and Ottawa. As well, the company has 5 more in the works according to their website. In a June 2021 interview with CBC News, Lam voiced her opinions on the saturation of the local market, stating, “Stores potentially closing or consolidating following the rush of the optimistic opening is not that surprising and rather validation for businesses to evaluate their intentions of opening or growing quickly in the first place…A measured and sustainable approach to growth should not be a new concept to cannabis as we see it everywhere else.”
Interestingly enough, even with this huge wave of new cannabis storefronts all over the city, many companies are continuing to expand, opening up new branches both across the city and the province. For instance, Fire & Flower Cannabis Co. presently has 5 authorized storefront locations in Toronto, 2 in progress, and 4 public notices. Another popular Toronto chain is Tokyo Smoke with 9 authorized storefronts, 4 in progress, and another 4 public notices. However, both companies are not limiting their operations to the city but expanding beyond it to areas such as Ottawa, Aurora, and Barrie. While the AGCO and OCS continue to discuss the over-saturation of the market and how this is likely to have negative consequences for many, it seems that these businesses have no intention of slowing down any time soon.