Pot store chain says low-income areas are good for sale

With the escalation of competition in Ontario, potshop operators are recognizing potentially unpleasant sales trends.  (Steve Russell / Toronto Star via Getty Images)

With the escalation of competition in Ontario, potshop operators are recognizing potentially unpleasant sales trends. (Steve Russell / Toronto Star via Getty Images)

For cannabis stores in Ontario, the worn-out real estate mantra “location, location, location” could mean starting a store in lower-income neighborhoods close to where liquor is sold, according to some large pot retailers in the province.

“I have a bit of a saying. It’s probably not a very popular saying. But sometimes poor people are more,” Steven Fry, president and co-founder of Sessions Cannabis, told an audience at Lift & Co. Expo last week. “It is seen in certain demographic areas, especially in lower socio-demographic areas, that cannabis sales are generally higher.”

His comments come amid growing competition in Canada’s most populous province, where the number of pot stores has exploded through the COVID-19 pandemic. Many have opened in store premises left by companies unable to cope with the economic downturn.

According to real estate firm Colliers International, the number of pot stores in the Greater Toronto Area (GTA) grew from 13 in January 2020 to 336 in March 2021, an increase of 2,485 percent. The Ontario Cannabis Store (OCS), the state-owned retail monopoly wholesaler, said in August that the province has passed 1,000 locations.

Fry, whose company operates 44 locations in Ontario, according to its website highlights another potentially unpleasant reality of selling cannabis – an increase in sales on days when public benefits hit his customers’ bank accounts.

“I’m looking at baby bonus day, check day, retirement day. [They’re] the biggest days, by a lot, “he said, noting that the sales increase can be up to 30 percent compared to the average daily sales.

For Chris Jones, founder of CANNABIS XPRESS, a chain of small-format pottery stores based in Ontario, choosing the right location involves mapping nearby Liquor Control Board of Ontario (LCBO) and Beer Store locations.

“Usually, the types of people who have a high alcohol and tobacco consumption are also cannabis users,” he told Lift & Co. Expo participants during a panel debate.

Fry agrees.

“We’re looking for things that would be complementary, whether it’s restaurants or grocery stores. We love liquor stores and beer shops, specifically in Ontario,” he said. “Any store we’ve had that is in or near an LCBO space performs better than other stores.”

Nova Cannabis (NOVC) Chief Operating Officer Marcie Kiziak says neighboring stores do not always provide stronger sales due to restrictions on who can set foot in pot stores.

“You can not bring children into a hash shop as you can into a liquor store. So if you want to pick up your hash, you can not if you have children,” she tells Lift & Co. audience.

Nova has more than 70 locations across Ontario, Alberta and Saskatchewan under its Value Buds and Nova Cannabis banners.

Kiziak also notes that her company’s core customers were not the ones she originally expected.

“Originally, we thought there would be that kind of … call them the white wine crowd. That’s the best description I have,” she said.

“It’s not who our customer turns out to be. Our customer turns out to be the big bag consumer,” she added, referring to the large format, lower margin products aimed at disrupting the illegal market.

George Smitherman, president and CEO of the Canadian Cannabis Council, told Yahoo Finance Canada that he has seen no evidence of a link between strong cannabis sales and consumers in low-income neighborhoods or alcohol.

“I do not like the sound of it, to be honest with you,” he said in an interview. “Maybe it’s talking about successful retail having to be everywhere because our customers are everywhere.”

Pot shop pain is expected in 2022

Canadian recreational cannabis spending, according to $ 354.6 million, amounted to September Statistics Canada. Ontario accounted for nearly 40 percent of the monthly figure.

The province initially experienced a slow rollout of physical stores, much to the frustration of licensed manufacturers, who blamed the situation for poor financial results. Now analysts are sounding the alarm over the high number of stores and predict that some will not survive through 2022.

“We are concerned that 2022 could be a year of retail closures in Ontario,” BMO Capital Markets analyst Tamy Chen wrote in a note to clients earlier this month.

The distribution of pot stores has been uneven across the province, with large municipalities such as Mississauga, Vaughan and Richmond Hill opting out of allowing stores to open.

“Unless more municipalities choose cannabis stores, this could lead to a (year-on-year) decline in industry sales,” Chen added.

Jeff Lagerquist is a Senior Reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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