CANNABIS 2.0 IS UPON US
Are retailers, licensed producers ready for next phase of legalization?
TORONTO Sitting on a bench outside the Hunny Pot, the first cannabis retailer to open its doors in Toronto, three friends spark a pre-rolled joint they bought inside only moments earlier.
This scene wouldn’t have been possible little more than a year ago when smoking cannabis in public was still illegal, as was buying it in brick-and-mortar shops. Then, the Toronto retail space that now houses dozens of dry leaf and oil products was used only to host the occasional pop-up event after longtime tenant New Era, a hat retailer, vacated it.
Change has been swift in the cannabis space and outside the Hunny Pot, one of the three 20-something friends is looking forward to more. In December, retailers will begin selling a host of new cannabis derivative products, including edibles, vaporizers and beverages in a second wave of legalization dubbed cannabis 2.0. It has taken just a year for the next phase of legalization to occur, but for one of the friends, the opportunity to avoid smoking products hasn’t come fast enough.
“I don’t want to f--k up my lungs anymore,” the man said, eyes watery after taking another puff from the joint.
Cannabis 2.0 will test how quickly retailers such as the Hunny Pot and the licensed producers that supply them are able to adapt. The introduction of extracts is estimated to add $2.7 billion to the cannabis market, according to Deloitte, but as producers add dozens of new products, retailers may already be facing a crunch in terms of how much of it they can actually carry.
The Hunny Pot’s layout was meant to be minimalistic, said spokesman Cameron Brown. The store is divided into four small floors and only two of them have product on display. Customers can find CBD products on the third floor, THC products on the fourth and accessories in glass cabinets on both.
Brown said the store has little more than 100 stock items on display from a total of 350 that it stocks. After cannabis 2.0 arrives, that last number might triple. So Brown and the Hunny Pot find themselves at a crossroads: They can either sacrifice its minimalist aesthetic, or choose not to carry a significant portion of the new products.
At least to start, the Hunny Pot is heavily leaning toward the second option. Brown said the store may decide to order less than 25 per cent of the products to be made available on Dec. 16 after a 60-day moratorium begins. Like other retailers, the Hunny Pot doesn’t know what these products will taste like or how they’ll be received and so they’ll be forced to be agile and adapt quickly to customer preferences. “We’re going to have to evolve on a weekly basis,” Brown said. “You’ll know very quickly what’s moving, what’s not and what’s going to continue to sell.”
The rotation system that the Hunny Pot and other retailers are planning to implement won’t flatter licensed producers. Unlike in the alcohol industry, regulations stipulate that producers cannot buy shelf space and can have no influence on where their product is displayed — or if it’s stocked at all.
Not wanting to overwhelm retailers, producers are staggering the release of new products.
Canopy Growth Corp. president Rade Kovacevic said the firm has 50 new products in its pipeline but is planning to have what he would only describe as a “core part of the portfolio” available in December, with the rest hitting shelves over the following six months.
At OrganiGram Holdings Inc., CEO Greg Engel is planning a similar approach that will see vaporizers and vape pens available on Day One, cannabis-infused chocolate during the first quarter of 2020 and a dry powder beverage in the second quarter. The company is planning to have only 24 stock items.
Of the new products that will be made available, most retailers have concluded that beverages will likely take up the bulk of space, given that some will have to install refrigerators to serve them cold. That played a role in OrganiGram’s decision to push forward with a dry powder beverage mix instead of a bottled drink, Engel said.
“Our strategy with beverages is we’re only launching a dry powder beverage because we did look at shelf space,” he said.
Besides concerns over the preparedness of individual retailers, Engel said some provinces don’t have sufficient retail space for the expansion. Ontario will expand its cap on the number of cannabis stores from 25 to 75 by the end of the year, but still pales in comparison to Alberta, which has more than 250 locations.
Even with 75 stores in Ontario, consumers may have to accept that they’ll have to visit different stores in different cities to find a specific product. Complicating matters, Brown said the province has approved some locations that are planning for just 800 to 1,200 square feet of retail space.
In Ottawa, Mimi Lam’s Superette has over 3,000 square feet in retail space in a store that was built for constant change. When the store was built, Lam already knew that extracts would soon be hitting the market and planned for an easy transition.
The shop has a deli bar complete with a white-box menu above it. Both are advertising mostly preroll and dry leaf products but it’s easy enough to picture edibles in their place. Instead of rushing to put in refrigeration units by December, Lam already has set up two vintage fridges for decoration but that can be fully functional to store and display beverages.
That versatility should help with Lam’s plans to buy “wide and shallow” in December, bringing in a large number of products in small quantities, seeing what moves off the shelves and quickly rotating different products.
“What we recognize is supply, introduction of new products and brand is going to be in so much flux over the next six or twelve months, that we are not looking to be beholden to setting precedence in how we make those decisions,” Lam said.
Fire and Flower Holdings Corp., which operates more than a dozen stores across the country, uses modular shelving that can easily be removed and replaced with refrigeration units, according to CEO Trevor Fencott. He said he is not concerned about making changes to the store layout since he doubts retailers will see hundreds of new products all at once.
The exception, he said, is in Saskatchewan where retailers can buy their product directly from licensed producers and guarantee that it’ll be on shelves in December. In other provinces such as Ontario, where the government buys the product from producers, has it shipped to a warehouse and then makes it available for individual retailers, delays are to be expected.
“Look what happened with 1.0 — and that was dry cannabis,” Fencott said.
Depending on the how successful the new products are, the Hunny Pot has more drastic plans that would see three walls potentially being torn down to make additional space, spokesman Brown said. In the meantime, there will be many adjustments made on the fly.
“We’re going to have to out product really quickly if it doesn’t sell and try something new,” Brown said. “That’s where the responsibility is going to come down on the LPs to provide a quality product for the consumer because if they don’t, they might not have a second chance in these stores.”