Article by The London Free Press
Ontario’s pot czar is warning the market may become so crowded with cannabis stores, some won’t survive the competition — and the fallout could be felt in Southwestern Ontario, home to nearly 60 stores with dozens more coming. There were 572 cannabis retail stores in Ontario as of March 31 — a figure that doesn’t include illegal dispensaries, most of which are located on Indigenous territories — and that number will climb to 1,000 by September, according to a new report by the Ontario Cannabis Store (OCS), the government-run marijuana wholesaler and online delivery service. “Unfortunately, this rapid growth will likely result in some retailers being faced with increased competition and a crowded marketplace, which could result in some closures and market right-sizing,” OCS interim president and chief executive David Lobo said in the report released last week.
“Other retail stores may choose to participate in mergers and acquisitions to increase their size and scale, and presumably drive down their operating costs.”
The situation expected to unfold in the retail market resembles the growing pains experienced by Canada’s licensed pot producers. Those growers sprang up across the country when recreational marijuana was legalized in 2018, leading to an oversupply of product at a time when brick-and-mortar stores still weren’t open in most provinces.
Faced with slumping stock prices and difficulty securing investments, many producers have been forced to scale back expansion plans, lay off staff, merge with larger companies or shut down.
James Jesty is the former president of Friendly Stranger, the operator of 15 pot shops, including one in London, that Fire and Flower acquired in December.
Jesty, who stayed on with Fire and Flower until last month, predicts there will be more consolidation in the retail industry as the big players buy up smaller operators.
While there’s still room for more cannabis stores in Ontario, he said, cities with heavy concentrations of the businesses, such as Toronto and London, are likely to see some closings.
“Come Christmas, we’ll probably see some start to fail,” he said. “But I don’t think that’s any different than any other retail. If all of the sudden there’s 10 shoe stores on the strip, somebody’s not making it.”
Among the challenges marijuana retailers face, the biggest is having the OCS as the sole supplier, Jesty said.
“It’s almost impossible to be competitive on the products you carry,” he said.
Marga Vertolli, owner of Lux Smoke on Wharncliffe Road South, said there are too many other cannabis retail stores in London and other cities.
“They should have a cap on it,” she said of the number of retail store licences the government doles out.
Vertolli, whose business marked its one-year anniversary on Friday, highlighted the restrictions on advertising as a major hurdle for store operators.
She also predicted some of her competitors will be forced to close as more outlets open.
“It’s like that in every business,” Vertolli said.
But the biggest threat to the pot shops’ bottom line remains the black market, which accounted for 44 per cent of the marijuana sold in Ontario in the latest quarter, up from 43 per cent the previous quarter, the OCS report said.