How to get marijuana users to legal stores? Proximity is key, study says

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For marijuana retailers, it’s no secret: Customers like buying weed close to home, if they can.

New research into Canada’s regulated cannabis market supports that intuition: Consumer proximity to government-regulated stores increases the odds that people will source product from the legal market.

The paper – due to be published in the Journal of Studies on Alcohol and Drugs – explores the association between how far Canadian cannabis users live from regulated cannabis retail stores and how they choose to obtain marijuana products.

Perhaps most relevant to the cannabis industry, the research found that respondents who lived less than 3 kilometers (roughly 1.9 miles) from the closest regulated marijuana retailer were more likely to source cannabis from a legal store and less likely to get it from a regulated website (one of the other ways survey respondents could report obtaining cannabis).

“What we took from that is that perhaps there is a diminishing effect after a while,” said Elle Wadsworth, a senior analyst with Rand Europe who was the paper’s lead researcher in her previous role as a postdoctoral student with the University of Waterloo and the Canadian Centre on Substance Use and Addiction.

“There’s so many stores – but unless they’re very, very close, perhaps the amount of stores has that diminishing effect. As long as there’s one store very close to you, that potentially may bring you into the legal market.”

The research underscores the value of convenience among Canadian cannabis users, said Michael Armstrong, an associate business professor at Brock University in St. Catharines, Ontario, who studies Canada’s regulated cannabis market and was uninvolved in Wadsworth’s research.

“If you are a retail chain, you would be looking at this and saying, ‘OK, here’s a study that says, ballpark, 3 kilometers seems to matter,'” Armstrong said. “So, take that into account when you’re planning your locations.”

Naturally, other factors also matter when locating cannabis stores. For example, Armstrong asked, “Can I make enough money to support that number of locations?”

“Do I need more density, or do I have to spread the stores out to keep them profitable?”

3-kilometer effect

The paper explored the effects of regulated cannabis stores’ proximity between 2019 – the first full year after Canada legalized recreational marijuana in October 2018 – and 2021.

It analyzed data from 15,311 Canadian cannabis users who responded to the International Cannabis Policy Study, using postal codes to sort their locations. (Canadian postal codes generally denote much smaller geographical areas than U.S. ZIP codes.)

The researchers examined whether cannabis users obtained marijuana from regulated stores, illicit stores, regulated websites, illicit websites, illicit dealers, home production or from family and friends.

Those living less than 3 kilometers from a regulated brick-and-mortar cannabis store were less likely to buy cannabis from regulated websites or grow their own flower, compared to those who lived farther away.

“Distance to the nearest legal store was not associated with sourcing from friends or family, dealers, illegal websites and illegal stores,” according to the paper.

“The lack of association may be due to these relationships being established prior to legalization.”

The paper highlights the apparently diminishing effect of reducing cannabis store distance to consumers by comparing Alberta to Quebec.

By 2021, Alberta’s open market for private-sector cannabis retail resulted in a high ratio of cannabis stores to residents: 18.7 stores per 100,000 Albertans.

In contrast, Quebec’s government-owned retail monopoly had just 0.8 stores per 100,000 Quebecois.

Although Albertans were indeed more likely than Quebecois to get their cannabis from regulated stores, they were only 1.6 times more likely to do so.

“Even though we’ve got a 23-fold difference in (the) number of stores, it doesn’t reflect the same magnitude in those purchasing legally,” said researcher Wadsworth.

“As Quebec’s retail store locations are chosen by the government rather than the market, they are geographically more diverse and have been centrally planned to match population distribution,” the study said.

The researchers also determined that Canadian respondents lived closer to regulated marijuana stores in 2021 than they did in 2019 – an effect explained by the increase in adult-use marijuana stores across Canada during that time period.

Additionally, regulated stores became the most common source for cannabis in 2020 and 2021, compared to family and friends in 2019.

That’s “important for legalization,” Wadsworth said, noting, “The whole aim is to bring people into that legal market, and our paper is showing that the movement seems to be there.”

Finally, the research found that a higher proportion of respondents sourced cannabis through regulated channels – and a lower proportion sourced it through the illicit market – in 2021 versus 2019, in line with one of the stated objectives of Canada’s recreational cannabis-legalization law.

Cannabis business takeaways

The association between consumer proximity to regulated cannabis stores and the likelihood of those consumers shopping at those stores may not surprise cannabis retailers.

But it’s a novel finding in academic research, business professor Armstrong told MJBizDaily.

“It’s the first time, as far as I know, that we’ve had a study actually look at that particular question and confirm that if you have a legal store nearby, people are more likely to buy legally,” said Armstrong, whose previous research has linked the number of legal cannabis stores in Canada with an increase in sales of legal cannabis.

“That’s important from a business perspective; it’s important more so from a regulatory or a government-policy perspective,” he said.

In the study, the 3-kilometer distance represents a straight line between a respondent’s postal code and the closest retail store, meaning that it doesn’t necessarily represent the actual travel distance to that store.

Armstrong cautioned that the 3-kilometer figure shouldn’t be taken as “a scientific magic number.”

“Three-point-one (kilometers) is not going to be magically worse than 2.9,” he said.

“But if you’re getting up to 6 or 7 (kilometers), OK, you’re probably going to be not as convenient.”

As of April 2023, Canada had more than 3,740 regulated cannabis retail outlets across its 10 provinces and three territories, according to data compiled by MJBizDaily.

On a national level, that’s a ratio of roughly 0.95 cannabis stores per 10,000 Canadians.

Alberta continues to have the highest number of cannabis stores per capita.

Canadian sales of regulated recreational cannabis increased by 17.9% in 2022 over 2021, totaling 4.52 billion Canadian dollars ($3.4 billion).

The latest monthly retail sales figures showed CA$411.7 million worth of regulated recreational cannabis sales in April.

Canadian medical marijuana sales, which are not available through adult-use retail storefronts, have declined from their peak as recreational cannabis spending has increased.

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