When Canada first announced that recreational cannabis would be legalized across the country in 2018, people were unsure how the new rules would translate to the retail market. Since then, the cannabis retail model has undergone considerable shifts in Ontario, where it was initially introduced as a limited sector, with a lottery system created for licencing. While the system initially frustrated entrepreneurs looking to capitalize on this new opportunity, many of these restrictions have now been lifted and those who have invested significant resources and capital into a new business are seeing major markets such as Ottawa and Toronto become saturated with new businesses.
Ontario Lifted Caps and Other Restrictions in January 2020
In December of 2019, the Ontario government announced it would be lifting the lottery system originally implemented to help curb retail demand in light of supply shortages. Once the supply issue had been rectified, Attorney General Doug Downey stated that increasing the availability of cannabis through legal channels was the best way to combat the black market, and help keep children safe.
In addition to opening the licence system up to more applicants, the changes, which went into effect January 1, 2020, also removed other restrictions, including proof of credit and the payment of substantial application fees.
Ottawa Retailers Asking for Caps to be Reintroduced
Since those changes went into effect, the number of cannabis retail shops in the province has increased significantly. Between March 2020 and March 2021, the number of shops in Ontario grew from 52 to 572, according to reports. While prospective retailers initially objected to the restrictions put into place when the market first opened, citing them as overly harsh and unfair, some retailers are now calling for caps to be reintroduced as competition, particularly in larger cities, increases.
A recent CBC article focusing on the cannabis retail market in Ottawa and surrounding areas indicates that the city can expect to see a 950% increase in the number of cannabis retail shops between January of this year and January 2022. While the industry currently brings in over $100 million per year in Ontario, individual owners worry about how thin each person’s share will become if consumers have too many options, especially in a market where it is difficult for one shop to distinguish itself from another.
In addition, the price of cannabis has dropped quite a bit in the past year, by as much as 50% in some cases. The province wants to see prices continue to fall as another method of reducing the still-active illegal market.
Karen Nguyen, chief operating officer of Collective Growers, has one retail location already open in Ottawa and pending applications for three more, wants to see applications capped at the end of 2021. According to industry analyst Craig Wiggins, it’s likely that not all locations will be able to survive the competition, pointing to several closures in Alberta, where the cannabis retail market was permitted to expand earlier than Ontario.
Cannabis Retail Entering Shopping Mall Market
To date, cannabis shops have largely been located in street-facing shops, however, they will soon be moving into some of the province’s largest shopping malls. Tokyo Smoke, one of Canada’s largest chains, recently signed a deal with Cadillac Fairview to open locations in nine shopping malls by the end of 2021, including the Rideau Centre in Ottawa.
The chain has already opened it’s first indoor mall location in the Devonshire Mall in Windsor, with plans to open in Toronto’s Eaton Centre, Sherway Gardens, and more. According to retail analyst Bruce Winder, malls are the natural next step for cannabis retail:
As cannabis consumption has become mainstream in society and with the natural churn of retailers coming and going the time is right…Not unlike a customer picking up a bottle of wine or spirits while shopping, cannabis as a category has earned its position as a staple in malls. Certainly, malls need fresh tenants too that can draw in weekly traffic to displace bankrupt retailers.
It remains to be seen how many business the province will be able to sustain, while also maintaining a the provincially-run online-only Ontario Cannabis Store (OCS). One potential boon to the industry is the pandemic – in just the first month of pandemic restrictions in Ontario, the OCS reported a 600% increase in online orders.
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