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]]>A lot has changed in less than two years.
Since then, Ontario has significantly upped its approvals and as of mid-February of this year, regulators are issuing approximately 30 new licences per week. As of the same point in time, there were 430 authorized cannabis retailers open in Ontario, with over 900 applications still awaiting processing. According to projections by CTV News, Ontario is in line to have nearly 1,400 operating shops across the province by the fall, or 1 for every 10,000 residents. This is double the number of LCBO locations, although it does not count other retailers permitted to sell alcohol, such as grocery stores.
The accelerated growth rate of legal cannabis retail shops naturally leads one to question how many businesses the industry can sustain over the long run. The key to long-term success for retailers is customer loyalty, however, some retailers say the rules make attaining this difficult.
Customer loyalty is an elusive concept that every retailer strives for, as this type of goodwill is what enables a business to endure over months and years. To develop this loyalty, retailers need to find a way to stand out from their competition and offer something unique that customers will come back for again and again. But when retailers are forced to follow rigid provincial and federal guidelines, distinguishing oneself from the competition can be a challenge, to say the least.
All authorized retailers in the province are required to obtain their stock of cannabis products from the same wholesaler, which is owned by the province itself. This means every store has access to the same products at the same prices, limiting their options to offer unique pricing or products to customers. By contrast, in Saskatchewan, for example, retailers are permitted to negotiate directly with producers, which allows them to keep costs down. Further, there still exists a black market in Canada where unauthorized retailers are selling huge varieties of products such as edibles that are not available through legal means. The lack of regulation means these retailers can offer products, packaging and pricing that licenced retailers just can’t access.
Similar to alcohol and tobacco rules, there are strict limits on how cannabis retailers can advertise their products and services. For example, advertisements can not be made to appeal to anyone under the age of majority in a respective province (19, in Ontario). Further, retailers are not permitted to use testimonials, including the ever-growing influencer market, to speak to the quality of any cannabis product. Instead, testimonials are required to focus on the brand over the product. Cannabis can also not be made to be associated with an appealing lifestyle or any medical benefits as part of any advertising campaign. While these rules are in place to protect young people and others, they do place quite a few restrictions on how business owners can get their brand into the collective consciousness.
COVID restrictions on all retail have made the in-person cannabis retail situation considerably more difficult as well. While most stores offer customers options to shop online and pick up purchases curbside, the legal cannabis business is relatively new and some customers need much more guidance through a transaction than other retail industries. A spokesperson for one Toronto retailer, speaking to CTV News, put it this way:
With a cannabis store, the products aren’t on display, it’s a relatively new product, so people need to spend the time on education. They don’t know the difference between a vape and an edible or a topical. There are so many different products. It’s a much longer transaction.
With some stores forced to close other than for online or phone orders, some customers may simply opt to purchase directly from the province’s online-only retailer, the Ontario Cannabis Store, or wait until stores reopen when they can get more information before purchasing.
Some shops are looking to create unique services or offerings however they can. One store has purchased a press that allows them to press fresh cannabis flower into a concentrate on the premises, to order. They also will roll fresh flower to order for customers, and offer a price-matching option. However, due to advertising restrictions, they cannot communicate these services on their windows. And what’s the point of offering services to distinguish your store, if nobody knows about them?
At GLG LLP, our business lawyers provide a full range of services to Ontario’s growing cannabis industry. We advise clients with respect to licencing, regulation and operations for new and existing cannabis retailers and cultivators. To speak with a lawyer, please contact the firm online or call 416-272-7557.
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]]>The new measures have come under fire from many sides, including business owners, customers and retail advocates. One argument is that the measures unfairly target small businesses, while ‘big box stores’ like Walmart can carry on business despite a good portion of their product falling into the ‘non-essential’ category, such as electronics and beauty supply items. We previously discussed these criticisms in a previous blog about the Hudson’s Bay Company bringing a claim against the provincial government in opposition to the measures.
One of the most common critiques of the lockdown measures is the mixed messages many feel the restrictions convey. On the one hand, residents have been asked to remain in their homes unless they have an essential trip. The government has deemed certain activities essential, such as grocery shopping, exercise and medical appointments. However, non-essential retail stores are permitted to operate curbside pickup, meaning it’s feasible a person could leave their home to go pick up decorative items or a new video game system.
In addition, some have said the rules have been applied haphazardly. For example, government-run LCBO and Beer stores remain open for in-person shopping, yet privately-owned cannabis retail stores are only permitted to offer curbside pickup or delivery. Further, these curbside pickup transactions are limited to items purchased by the customer ahead of time online, limiting spontaneous shopping transactions.
One major critic of the new measures is the Canadian Federation of Independent Businesses (CFIB), which sees the measures as unfairly punishing small businesses in favour of large corporations. CFIB’s president, Dan Kelly, said that the messaging about what is essential and what isn’t has created confusion among both retailers and their customers. Further, the organization claims the restrictions might actually do more harm than good from a health perspective.
By limiting the number of retailers consumers can visit and the opening hours, this means that there will be higher concentrations of people at fewer locations, increasing the risk of close contact. The organization’s belief is that allowing small businesses to continue to serve customers in person, would reduce pressure on big box stores, while also protecting small business owners during this extended period of financial hardship. The CFIB said it would like to see restrictions closer to what the province of British Columbia has enacted, where small retailers are permitted to open, so long as they observe the following protocols:
Notably, the measures implemented by the government have received praise from other industries, which are allowed to continue operations with health protocols in place, such as manufacturing and construction.
Our business lawyers can advise on how best to protect your business and maintain staffing through this period of uncertainty. Contact GLG LLP in downtown Toronto for efficient and skilled advice on the management of your business. Call the firm at 416-272-7557 or contact them online to schedule a confidential consultation.
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]]>The post Ontario Cannabis Retailers Worry Province is Undermining Profits appeared first on GLG LLP Lawyers - Experienced Toronto-Based Lawyers Providing Client Centred Business, Real Estate and Litigation Services.
]]>The ongoing pandemic may have been a boon to business as well, with sales increasing by 30% between May and September of 2021. In September 2020, the province vowed to double the approval rate, issuing an average of 10 licences per week instead of the usual 5.
Despite the increase in sales, many of Canada’s cannabis producers are sitting on unused product, and some have even been forced to shutter facilities and lay off staff. According to a recent CBC article, cannabis production was in overdrive prior to the legalization of recreational marijuana. As a result, the industry overall has about seven months’ worth of inventory just sitting around, when a typical supply chain only requires two months’ worth of inventory in reserve.
This has led to some of Canada’s larger producers cutting back on facilities and staff in order to boost profitability. One of those is Canopy Growth, a company we previously wrote about in September 2020. At the time, Canopy was facing a lawsuit over its refusal of a significant delivery of product from a greenhouse it had partnered with. Canopy refused the delivery citing a drop in wholesale prices, which were far below the price originally negotiated in the production contract.
Recently, Canopy, which is based in Smith Falls, Ontario, has opted to close operations in five different provinces and let go of 220 employees. The company’s chief executive officer David Klein said the moves are expected to save the company $150 to $200 million, and that the closures won’t affect Canopy’s ability to meet demand in the marketplace. This would seem in line with reports that overall, some of the country’s largest producers are finding they are producing product at too quick a pace.
While retail shops in the province are privately owned, the Ontario government is deeply entrenched in the retail model. Not only are licencing fees paid to the province, but the Ontario government also acts as a wholesaler for all legally-sold cannabis. The province buys the product directly from producers like Canopy, and then sells it to private retailers. This gives significant control over pricing to the government, ensuring that the prices in the private shops remain in line with the prices on the government-run online retail shop, the Ontario Cannabis Store.
While the existing model worked well when the industry was burgeoning, some private retailers have expressed a desire for a change. One retailer said that the original model was helpful in enabling new retailers to purchase cannabis legally, now that the industry is more entrenched, it’s no longer necessary. In fact, having to buy from the Ontario government, also a direct competitor when it comes to sales, is counterintuitive.
Daffyd Roderick, senior director of communications and social responsibility at OCS said that the current wholesale model benefits both parties, and ultimately, the consumer:
Stores are our partners in growing the size of the legal market, not our competition. Our pricing model is designed to not undercut stores. All stores buy cannabis from us at a fixed markdown from OCS.ca prices. Our customer journey data indicates that OCS.ca and the retail stores actually complement each other, as many consumers read our [educational] articles and browse our products before going to a retail store to purchase the product.
Given that the province is earning income from the licensing fees for new and established retail outlets as well as from the wholesale of cannabis products to those same retailers, things are unlikely to change anytime soon. However, we will continue to monitor significant updates in Ontario’s cannabis retail sector and report them here.
At GLG LLP, our business lawyers provide a full range of services to Ontario’s growing cannabis industry. They advise clients with respect to licencing, regulation and operations for new and existing cannabis retailers and cultivators. To speak with a lawyer, please contact the firm online or call 416-272-7557.
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]]>The post Greenhouse Shareholders sue Cannabis Producers for Bad Faith appeared first on GLG LLP Lawyers - Experienced Toronto-Based Lawyers Providing Client Centred Business, Real Estate and Litigation Services.
]]>When the greenhouse company attempted to deliver the product to Canopy, Canopy refused the delivery, citing a drop in wholesale prices for cannabis. Canopy said that the price had dropped below what was set in the agreement with the greenhouse company, and therefore, the original set price in the contract was no longer reasonable.
This has left the greenhouse company with 7,500 kilograms of cannabis plants, and a number of unpaid debts to third-party contractors engaged to finish building the new facility. The suit is in the early stages at this point, with the greenhouse company having served the Statement of Claim to Canopy. Canopy released a brief statement, saying the suit is without merit and that the company plans to vigorously defend the claims in court. We will monitor this case and provide updates as they become available.
The lawsuit coincides with Canopy’s recent high-profile collaboration with Martha Stewart, which saw the launch of several CBD products in America. The product line, which includes gummies, oils and soft gels, is set to be distributed in America only, with no plans to launch in Canada for the time being.
Cannabis retail sales in general have seen ups and downs since the industry was legalized in October 2018. There was a notable decline in sales across the country in September of last year, with New Brunswick being the hardest-hit province with a 40% drop in sales. In comparison, Ontario saw a 6% decline in the same month. Some experts chalked it up to the shorter month, while others saw it as part of a ‘back to school’ phenomenon, with people naturally consuming fewer recreational drugs in September than they would have during the summer months.
Since the pandemic hit Canada in early March, many retailers were forced to close initially as part of the province’s emergency order requiring all non-essential businesses to close temporarily to slow the spread of COVID-19. The stores were allowed to resume business again in April, however through curbside pickup only. Many shops only accepted debit or credit card payments during that time, which affected sales. One Ottawa store owner said that cash transactions normally account for 1/3 of her business, so there was still a noticeable drop once they resumed limited services.
Again, the country has been up and down, without a consistent trend province-to-province since March. In the statistics comparing March to April, some provinces experienced declines, including many maritime provinces and Ontario, while others saw a dramatic increase in sales. Alberta, for example, saw sales grow by nearly 5%. Ontario, in comparison, saw a decline of 9.6% in the same period.
At GLG LLP, our business lawyers provide a full range of services to Ontario’s growing cannabis industry. They advise clients with respect to licencing, regulation and operations for new and existing cannabis retailers and cultivators. To speak with a lawyer, please contact the firm online or call 416-272-7557.
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