Cannabis Canada Weekly: How Retail Clustering is Okay for Cannabis Shops; Village Farms in Focus

Article by BNN Bloomberg

Canada’s burgeoning cannabis retail sector may be getting a little too close for comfort, but that’s apparently a good thing.

There are 30 cannabis stores open or that have applied to open along a five-kilometre stretch of Queen Street West in Toronto, while other pockets across the city such as Kensington Market and Yonge Street also show signs of pot shop clustering.

The close concentration of cannabis retailers was brought into focus earlier this week when Ontario NDP MPP Marit Stiles tabled a private member’s bill that would allow the province’s municipalities to avoid situations where some neighbourhoods have no pot shops while others have a strip of multiple cannabis shops.

While private member’s bills don’t often become law, it certainly did highlight a concern some cannabis retailers are likely to have — and one exasperated by the fact that when retailers initially applied to the provincial regulator, they were often blind to the location of other shops.

However, some academics who closely study retail economics say clustering isn’t a bad thing at all.

There are two main reasons why businesses typically cluster together, according to Larry Plummer, an assistant professor at Ivey Business School at Western University. Plummer said the first is that some companies need to be located close to each other to access “factor markets” for things such as labour and supply materials as well as be near to ports and harbours for shipping and distribution. The other reason, which applies to cannabis firms, is to be close to consumer markets.

Plummer cites New York City’s “Jewellery District” in Manhattan as a prime example of how clustering can work for retailers.

“This kind of clustering acts as a ‘shopper’s mall effect’ on a consumers’ preference,” Plummer said in a phone interview. “They’re going to be able to find exactly what they’re looking for rather than taking the odd chance of selecting a place that’s out in the middle of nowhere.”

David Soberman, a professor at the Rotman School of Management at the University of Toronto, said that spreading out stores assumes that there’s an equal amount of efficiencies derived from their distancing, as well as that consumers are uniformly distributed between retailers. He said that this isn’t always true and that what’s happening in several Toronto neighbourhoods is that demographics and where cannabis consumers live are likely leading to a clustering of pot shops.

“These are areas of the city where you have a lot of avant-garde avenues that are considered to be the chic area of Toronto. And this is the sort of demographic where there is a high degree of interest in cannabis and cannabis products,” Soberman said.

Soberman, who said a lot of the challenges faced by cannabis retailers could be solved by researching game theory, adds that consumers are likely to benefit from the ability to price-compare offerings, given that all cannabis stores are unable to largely differentiate themselves through products available for sale. However, retailers can also capture consumer interest by appealing to certain demographics such as in how they educate new users or targeting consumers more comfortable in a luxury-type setting.

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Read the full article here.

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