Pot shop chain says low income areas are good for selling

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As competition intensifies in Ontario, pot shop owners recognize potentially nasty sales trends. (Steve Russell / Toronto Star via Getty Images)

For Ontario cannabis stores, the long-standing real estate mantra “location, location, location,” according to some of the major cannabis retailers in the province, can mean setting up a store in low-income neighborhoods near the liquor store.

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

His comments come amid increasing competition in Canada’s most populous province, where the number of pot shops has skyrocketed during the COVID-19 pandemic. Many have opened in retail space that has been vacated by companies that couldn’t weather the economic downturn.

According to real estate agent Colliers International, the number of pot shops in the Greater Toronto Area (GTA) rose from 13 in January 2020 to 336 in March 2021, an increase of 2,485 percent. The Ontario Cannabis Store (OCS), the state monopoly wholesaler for retailing pot shops, announced in August that the province had exceeded 1,000 locations.

Fry, whose company operates 44 Ontario locations, according to its website, highlights another potentially nasty reality of cannabis sales – an increase in sales on days when government benefits are poured into its customers’ bank accounts.

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

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

“Usually people with high alcohol and tobacco consumption are also cannabis users,” he told Lift & Co. Expo visitors during a panel discussion.

Fry agrees.

“We look for things that complement each other, be it restaurants or grocery stores. We love liquor and beer stores, especially in Ontario, ”he said. “Any store we’ve had that is in or near an LCBO square outperforms other stores.”

Marcie Kiziak, Nova Cannabis’ chief operating officer (NOVC), says nearby grocery stores don’t always mean higher sales due to restrictions on who can set foot in pot stores.

“You can’t take kids to a cannabis store like you can to a liquor store. So if you want to pick up your cannabis, you can’t if you have kids,” she told Lift & Co. Audience.

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

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

“We originally thought there would be this type of … call it the amount of white wine. That’s the best description I have, ”she said.

“This is not our customer. Our customer is turning out to be a big-bag consumer,” she added, referring to the large format, lower margin products aimed at disrupting the illicit market.

George Smitherman, President and CEO of the Canadian Cannabis Council, said Yahoo Finance Canada that he saw no evidence of a correlation between heavy cannabis sales and low-income users or alcohol.

“I don’t like the sound of it, to be honest,” he said in an interview. “Perhaps it speaks for the fact that successful trade has to be everywhere, because our customers are everywhere.”

Pot shop pain expected in 2022

Canadian recreational cannabis spending rose to $ 354.6 million in September, according to Statistics Canada. Ontario accounted for nearly 40 percent of that monthly number.

The province initially saw a slow adoption of brick and mortar stores, much to the frustration of licensed manufacturers who blamed the situation for lackluster financial results. Now analysts are sounding the alarm about the high number of deals, predicting some won’t survive until 2022.

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

The distribution of pot shops across the province has been uneven, with large communities such as Mississauga, Vaughan, and Richmond Hill choosing not to open shops.

“If more communities stop moving to cannabis stores, it could result in a decline in industry sales compared to last year,” added Chen.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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