GTA Cannabis Stores Shrinking
Cannabis stores in the Greater Toronto Area are shrinking. Although notable, it’s not surprising says Chris Jones, who operates what he calls the smallest cannabis store in Canada. He said that market saturation means companies will have to keep a careful eye on costs to keep competitive. GTA cannabis stores are shrinking to reduce rent and increase convenience.
“The ones that will make it are those that adopt an express model – enter, buy your weed, exit. None of that fancy stuff,” Jones told The Globe and Mail. (Please see link to the full article below.)
Jones founded Cannabis Xpress, an eight-store (so far) chain of cannabis retail stores based on the 7-Eleven model. Not only does this cut down on rent – his smallest store in Brampton, Ont. is just 80 square feet of customer space – it’s faster and more convenient for his customers.
“I designed it like a tiny convenience store. The idea is that customers can dash in and out in under three minutes to buy what they need,” he said.
Each store has only one budtender, lowering costs even further. The intent seems to be to satisfy regular customers who knows what they want rather that first-timers. That’s more the angle taken by Tokyo Smoke chain with its three-storey, 6,500 square-foot flagship store at Yonge and Dundas Streets or Superette’s retro supermarket themes.
The Reasons Behind Shrinking GTA Cannabis Stores
Market saturation has been a theme in Toronto and area ever since Ontario opened up its retail licences. In July 2021, the Toronto Sun asked how many cannabis stores are too many. Nobody knows yet, and the numbers continue to grow. Some analysts including Frederico Gomes with ATB Capital Markets said that there are some signs that market saturation may be starting to hit GTA cannabis stores.
“The big retailers have been doing well for the past two years. I think now, however, we are at a point where the market is becoming too saturated and even the big retailers are seeing sales per store go down,” Gomes said.
However, according to the Globe report, the Alcohol and Gaming Commission of Ontario (AGCO) reports only eight stores of the currently 1,291 cannabis stores in Ontario have asked to have their operating licences cancelled. So if competition is hurting stores, it’s not hurting enough to close them yet.
On the other hand, legal cannabis sales continue to climb. They surpassed illegal cannabis sales in Ontario in the July-September quarter, reaching 54 per cent of total cannabis sales. Compare that to post-legalization of just 5.4 per cent total cannabis purchases shortly after legalization, and it’s clear that legal cannabis sales are having an impact on the illegal market.
Given that the magic number of cannabis stores seems to be 1 for every 10,000 people to disrupt the illegal cannabis market, Ontario with over 14 million people still has room to grow.
But Gomes said that shrinking floor space is not the answer for GTA cannabis stores. “I think the biggest problem for retailers, beyond too many stores, is you have the same assortment of products in every store and you don’t have bargaining power over your supply because you’re buying from the province,” he said.
Instead, it will be the larger chains with deeper pockets who will be the winners. “The chains are the ones that have access to capital, they are likely to survive the competition over the next few years. But it will continue to be a tough market.”
As with any market, the cannabis market will mature over time. Toronto, given its size, high rents, and other high costs, will likely be a bellwether for what’s to come to the rest of Canada. Will shrinking GTA cannabis stores be the answer to market saturation – when and if it hits? As with every complex market system, there likely won’t be one solution but many.
Read the full story at the Globe and Mail
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