As the Canadian cannabis industry struggles to provide enough supply to meet exuberant demand since recreational use became legal, private retailers are faced with their own challenge: how to stay in business.
Many store owners in Alberta, Manitoba and Newfoundland have closed their doors as they await marijuana shipments, while others are considering different courses of action.
Provincial regulators, meanwhile, have taken their own measures to find equilibrium.
“We were proactive from the get-go,” said Ryan Kaye, vice president of operations at Four20 Premium Market in Calgary. “We built bigger stores. We have larger cannabis vault rooms,” which means the company has more room to store more cannabis.
But not everyone is in the same boat.
On a rainy Friday in early November, about one-third of Alberta’s cannabis stores were closed or reporting supply shortages.
The problem is so overt that the Alberta regulatory agency has ceased licensing privately owned stores until the supply issue is resolved, which it says might be up to 18 months.
At Numo Cannabis in Edmonton, owner Daniel Nguyen feels bad when he sees eager customers come through the doors looking for product that hasn’t come in.
And with no supply on this day, he plans to spend the weekend regrouping. “Getting angry won’t solve it,” he said.
Nguyen, like many others, recognizes that the current shortages are a function of the growing pains the industry expected. He knows the supply issues are spurring many to try to figure out how to best drive sales.
“They’re doing everything they can to find supply,” he said, referencing the Alberta Gaming, Liquor and Cannabis agency (AGLC). “This can’t happen forever.”
In addition to simply stocking more cannabis, Kaye has also seen a lot of interest in the accessories he sells, which helps the bottom line.
But retailers are also realistic about how precarious their situations are.
“When we see cannabis, we order it – and we’re really staying on top of ordering,” said Destiny Carrier, president of Daily Blaze in Stony Plain, Alberta.
“But we’re getting low on products, and the next order is coming in next week. We may have to close.”
Edmonton-based Elevate Cannabis, which received its license Nov. 1, hasn’t been able to open its doors, according to Josh Vera, the company’s president and founder.
“We run a tight ship, and shipments are expected soon,” he said. “This is something I’ve been preparing for 3½ years.”
Product restrictions limit options
Under the Cannabis Act, retailers are allowed to sell only prepackaged dried cannabis, oils and seeds – or plants for cultivation – from authorized retailers.
Edibles and concentrates won’t be legalized until the second half of 2019.
While that leaves roughly 300 products that can be sold, many aren’t making it to store shelves on a regular basis.
And each province has its own set of rules about what retailers can and cannot sell.
In Alberta, which has the highest number of private retailers among the provinces, supply is regulated by the AGLC – which has already recognized flaws in its system.
In mid-November, the agency announced it was changing to a manual ordering system to make things fairer for all shops. Stores will receive an updated sheet indicating which cannabis products are available and must place an order within 24 hours.
The Manitoba Liquor & Lotteries Corp. predicts product shortages in that province to last for the next six months in both brick-and-mortar and online stores.
Retailers there are allowed to sell 30 grams of dried cannabis to clients, as well as accessories such as bongs, vaporizers and pipes. That’s helped boost sales when shipments have been delayed.
But they are not allowed to sell plants, seeds or edibles.
Newfoundland retailers with stand-alone stores or a completely enclosed “store-within-a-store” can sell cannabis accessories, nonalcoholic beverages and promotional items alongside dried flower, oils, plants and seeds.
Food sales are not permitted.
Retailers that share space within other establishments can sell only cannabis and accessories at a dedicated marijuana counter.
British Columbia retailers face a different challenge altogether as the province essentially bans vertical integration – so retailers can’t shift their costs down the supply chain.
Lessons from the US
“I think Colorado has taught us at the initiation of such a program – adult consumer use of cannabis – (there) will be a massive spike in demand until the market normalizes,” said Allan Rewak, executive director of the Cannabis Council of Canada.
When Colorado legalized recreational marijuana in 2014, supply issues arose with businesses that didn’t grow their own marijuana, according to Greg Huffaker, director of client services at Boulder, Colorado-based Canna Advisors.
“Vertical companies did not have this problem,” he said.
Colorado’s impasse lasted three years.
“We had very attentive bureaucrats who were committed to success and pushed through license applications very quickly,” Huffaker said.
“Over time, the efficiency of the operations improved.”
Huffaker believes that the rollout in Canada is actually going well, as there hasn’t been a glut in product – which can drive down prices.
“In Oregon, for example, you see people selling ounces for humorously low prices (because there is an oversupply),” he said.
“It’s easier to start with a shortage, give out more licenses and hit that sweet spot.”
Huffaker said it can be helpful for retailers to fail – if they learn from their mistakes.
“It’s beneficial to let private businesses work out the finer points of getting the market demand right,” he added.
To sign up for our weekly international marijuana business newsletter, click here.