Has Canada reached cannabis retail saturation? Not yet, data firm says

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Canada’s cannabis industry has been sounding the alarm about oversaturation of retail stores, with the CEO of Sundial Growers warning of “massive store closures” and some stores closing or going up for sale in Ontario.

The question of cannabis retail saturation has even entered mainstream politics, with the Liberal Party of Ontario vowing during the ongoing provincial election campaign to rein in dense concentrations of marijuana retailers.

However, every Canadian province except Alberta could actually handle more recreational cannabis stores, according to an industry analyst.

Connecticut-based market data firm Cannabis Benchmarks estimates that Canada can sustain more than 5,100 brick-and-mortar cannabis retailers.

The country is far short of that target, with 3,162 stores nationwide as of the end of April.

Cannabis Benchmarks’ estimates assume an optimal number of stores for the wealthy country of 38.5 million people: roughly one store per 7,500 Canadians.

That figure is based on per-capita store count figures in two U.S. markets, Colorado and Oregon, five years after recreational marijuana legalization, explained Het Shah, Cannabis Benchmarks’ managing director, price assessments.

By that metric, Shah figures Alberta can support 597 cannabis stores.

Cannabis Benchmarks tracked 758 stores in the province of nearly 4.5 million people as of April.

“So, in our opinion, we’ve over-built in Alberta,” Shah told MJBizDaily.

“In other provinces, the story is completely different.”

Retail oversaturation in Alberta

Brock University associate business professor Michael Armstrong, who studies the Canadian cannabis market for the Ontario-based institution, said Cannabis Benchmarks is “probably right” that Alberta has more stores than it needs, with more retailers per capita than any other province.

“If we’re going to see a decline in stores on a net basis, I think we’ll see it (in) Alberta first,” Armstrong said.

Alberta raced to an early lead for cannabis store counts in Canada after legalization, with the much-more-populous Ontario catching up only in 2021.

Provincial cannabis retail regulator Alberta Gaming, Liquor and Cannabis (AGLC) has issued 758 retail licenses, with 482 of them issued since January 2020.

Now, Alberta’s retail green rush appears to be slowing: 45 five retail stores have closed in Alberta since January 2020, the AGLC said.

Alberta-based retail chain Nova Cannabis is 63% owned by Sundial, the producer whose CEO recently warned of significant numbers of store closures.

Nova CEO Marcie Kiziak agrees with Cannabis Benchmarks’ analysis that there are too many cannabis stores in Alberta and expects “a good amount of consolidation and rationalization over the next 12 (to) 18 months.”

However, not all those stores will close simply because there are too many retail licenses, she added, citing as an example retailers who signed expensive leases for less-than-ideal real estate early in the game.

“Lots of folks didn’t realize how difficult it was going to be to operate in this heavily regulated of an industry,” Kiziak said.

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In a consolidating retail atmosphere, she said store acquisitions are possible if the real estate is right.

“There’s a lot of things we know to be really true in cannabis retail, but we know that visibility is important and accessibility is important,” said Kiziak.

“So we’ll be looking at it from that lens.”

Potential store shuffling in Ontario

Cannabis Benchmarks counted 1,503 stores in April in Ontario, Canada’s most valuable cannabis market, and Shah estimates the province could support nearly 500 more.

Provincial licensing figures show the province is on track to achieve that number, but certain urban areas are experiencing an excess of cannabis retailers, with some stores up for sale and the pace of new store openings slowing.

“There are almost certainly parts of Ontario that have too many stores in the same small neighborhood, on the same street,” said Armstrong, the Brock business professor.

“In those cases, it’s a really good bet (that) eventually we’re going to see some of those close, unless they’re able to draw a lot of business from other parts of the city,” he said.

However, Armstrong believes some stores might move to viable locations with less intense competition.

Plus, Ontario still has some major “dry” municipalities such as Mississauga that don’t permit cannabis stores, he observed.

“So, 2,000 (stores) might be the right number, but the (stores are) currently in the wrong spots,” Armstrong said.

Nova’s Kiziak agreed that store clustering in Ontario is a challenge but said “there’s some really great potential for some underserved areas in Ontario.”

Lowest per-capita store count in Quebec

Quebec is Canada’s second-largest province by population, but it lags behind smaller Alberta and British Columbia in terms of monthly cannabis sales.

While Cannabis Benchmarks’ Shah estimates that B.C. (population 5.3 million) could support 266 more cannabis stores, he believes Quebec (population 8.6 million) could support 1,064 more.

“We always find a very strong correlation between store counts and sales,” Shah said.

Quebec had 88 cannabis stores at the end of April.

Its government-owned cannabis retail monopoly, the Société québécoise du cannabis (SQDC), opened its 89th store this month.

The SQDC plans to have 98 stores open by the end of March 2023, an agency spokesperson told MJBizDaily via email.

The retailer’s strategy “aims to ensure a widespread presence on the territory of Quebec in order to migrate consumers from the black market over to the legal market,” the SQDC spokesperson wrote, adding that the retailer has at least one store in every region of the province.

A government retail monopoly such as the SQDC – or the provincial cannabis retail monopolies in New Brunswick, Nova Scotia and Prince Edward Island – simply doesn’t need as many stores to capture the market as competing private-sector businesses would in a free market, according to Armstrong.

Plus, government policymakers likely have a different perspective on the ideal number of cannabis stores than the private sector, the business professor added.

Even though the SQDC has been slow to open stores, Armstrong credits the retailer for being “incredibly operationally efficient” and offering low prices for cannabis.

The SQDC’s strategy might also reflect a provincial government that has taken a public-health-first approach to legal cannabis, Armstrong noted.

With the possible exception of Quebec, Armstrong expects that “Canada will probably be more or less done with the retail expansion” by the end of the year.

“So if you’re an entrepreneur in this retail market … by the end of this year, you should be looking around and saying, ‘OK, this is what we’ve got to work with, this is my market, this is my competition,'” Armstrong said.

“‘What does my business plan look like, and is that good enough for me to stay in?'”

Solomon Israel can be reached at solomon.israel@mjbizdaily.com.