//‘They think we are gouging them’: Early lessons from the front lines of cannabis retail

‘They think we are gouging them’: Early lessons from the front lines of cannabis retail

It’s been a bumpy first few months for cannabis retailers in Canada, with product shortages and regulatory uncertainty dominating public discussion. As Ontario’s first wave of bricks-and-mortar stores get ready to open on April 1, the Financial Post’s Vanmala Subramaniam spoke to four people on the front lines about what’s working, what isn’t and the biggest lessons they’ve learned so far. The following interviews have been edited and condensed.

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Krystian Wetulani, a former grey market operator, is the owner of City Cannabis Co. and runs two licensed cannabis stores in Vancouver.

What’s been the biggest problem you’ve encountered so far? 

We are kind of spoiled here in Vancouver because we have some of the best cannabis in the world. Bringing in new types of products that were grown in large facilities, they haven’t caught up yet. The quality of the product hasn’t been there. We know which LPs are providing quality stuff and which aren’t. So we’re going to throw it back onto the licensed producers soon and make sure they are stepping up their game and giving us quality product. We are actually creating our own kind of scoring sheet based on customer feedback — how it smells, how it burns, etc, so that when customers come in to the store we’ll show them our score.

What have your customers been most unhappy about? 

The quality and the price. Our strains range anywhere from $11 to $20 per gram and they are used to prices between $6 and $12. The other obstacle to us is competing with the BC Cannabis Store because they price their stuff 30 per cent lower than us. So we have customers coming in saying, “Look, I can get this online for cheaper.” That’s something we are working with the province on and hopefully we can make things more competitive for us.


A woman smokes cannabis on legalization day in Vancouver, B.C.

Darryl Dyck/The Canadian Press

Has the range of available products been a concern? 

Oh absolutely. Range of products is a big problem. Moving from the unlicensed market (Wetulani ran a grey market dispensary for five years) to the legal market, we’ve lost 40 per cent of our revenue just because we aren’t allowed to sell many of the products that we used to. I would say CBD has been the biggest missing product that we’re seeing the most opportunity for. Lots of people coming in asking for it.

If you had advice for someone going into the legal cannabis retail space right now what would it be? 

I would say it is quite challenging. The municipal and provincial regulations you have to go through are intense, the time and money it requires to open the store. I would say to people to be careful before starting to throw in all their life savings. Not all locations make money. I would just caution them. There are a lot of procedures you have to go through: all your staff have to be vetted and go through security checks, there are SOPs (standard operating procedures), there’s tons more than people think there is to operate the stores.

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Trevor Fencott, Fire & Flower CEO.

Jacquie Miller/Postmedia News

Trevor Fencott is the CEO of Fire & Flower, a chain of 18 cannabis and cannabis accessory shops in Alberta and Saskatchewan.

What is your assessment of the state of cannabis retail in Canada, five months in?

The issue that the retail industry in general is facing is logistical problems with cannabis supply. Some people talk about it as if it’s a supply issue, but I think it’s also due to the newness of the industry. To me that’s a growing pain and that’s something that makes sense and is working itself out. Frankly for us, we are well capitalized and our goal from the beginning was to be a dominant market player so we’re planning for this, we know that it never works perfectly so we have ample contingencies.

Is there a specific retail system in the country that is working better than others?

In Saskatchewan, we deal directly with LPs. I think that system has been really effective for us, because it’s business solving its own problems. If we don’t have product on our shelves in Saskatchewan, it is only on us. I would suggest that provinces look very seriously at allowing private retail to run the show. There seems to be no compelling reason to me that the government needs to be doing this. We’re competing with the black market and this is not a business the government is generally used to participating in. It feels like there’s a lot of weight being put on provincial buyers and we simply haven’t seen any of these problems in Saskatchewan, where we supply ourselves.


An aquaponics grow operation by licensed marijuana producer Green Relief in Flamborough, Ont.

Carlos Osorio/Reuters

Why are the provinces so eager to be involved?

They are coming from a sincere desire for public safety. This is a new substance. I think it has to be done right. Having said that, having approached the six-month mark, they do not need to remain. Nothing catastrophic happened. Our society did not disintegrate. There aren’t people running through the streets smoking cannabis, because it has always been part of our society — we just daylighted it and now we’re taxing it, which is appropriate. But it would be better if the provinces weren’t involved.

Do you have any suggestions for making the retail experience better?

If there’s a way for the provincial systems to incentivize private industry to supplement their programs, I think that’s really something that should be considered. The black market offers those modalities. They offer different products. What sort of surprised us was however great this demand was, we’re not significantly displacing the black market at all. We are getting a lot of new consumers in the system that have some familiarity with cannabis but would not buy from the black market, but who want to know more.

Has being a publicly traded company given you an advantage over mom-and-pop retailers?

On the one hand, being a public company and having access to capital is important, but on the other hand we are quite small. Our problems are similar to the problems of mom-and-pop stores. We are just as much at the whim of municipal governments that are having a difficult time developing permits and at the whim of provincial governments. We are all in the same boat. I think it will be a number of years before you have retailers with the kind of scale you can expect of “big retail brands.”

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Trina Fraser specializes in cannabis law.

Wayne Cuddington/Postmedia News files

Trina Fraser is a partner at Brazeau Seller Law and one of the country’s foremost cannabis lawyers.

What are some of the biggest challenges in cannabis retail right now?

I can only really talk about Ontario, but everything about the lottery. The fact that it was announced at the very last minute before the original application process was intended to open, which means that a lot of people had done a lot of preparatory work structuring, hiring people — a lot of things had already happened because they wanted to be ready on the first day applications were ready to be filed.

What could they have done better?

It would have made a lot more sense to open the operator licence applications for a period of time and then done the lottery out of the parties that had been successfully approved as operators. That would have avoided a lot of the awkwardness we’re experiencing now, with retail operators who don’t have the experience needed to open a store.

More generally, what problems do you see going forward?

The whole supply issue, which is a national issue. I frankly think it’s going to get worse before it gets better. As we see the final regulations for edibles, concentrates and extracts come out and we start seeing processors start to actually allocate raw materials to those product types, we’re going to see inventory that would have otherwise gone to oil production and dried cannabis go to those new products. I think there is going to be this awkward phase where everyone is going to try and figure out what consumers really want to buy. Until we get that product mix right and until we fill up the supply chain with those products, I think we’re going to see stores selling out of things.


Packaged cannabis in the vault at Canopy Growth Corp. in Aldergrove, B.C.

Mark Yuen/Postmedia News

What would be an ideal retail system for you, based on the challenges that your clients tell you they are facing?

My personal leaning is toward a privatized system. Subject to government regulation and oversight, but not government operation. I mean, Saskatchewan. That’s what I’m looking at. I’ve been negotiating supply deals between licensed processors and retailers directly and just cutting out that provincial distributor middleman because to me it is just unnecessary. It is completely possible for the province to ensure security of the supply chain without actually having to physically receive and purchase and resell and ship inventory. I think it is unnecessary and I think it is just adding to the inefficiency of the overall industry.

Are you concerned about rules restricting what store employees can tell customers about cannabis products?

We always knew this was going to be a tricky issue. In the budtender/dispensary world, it was common to be asked not just what the experience was like, what product should I buy. When it comes to therapeutic applications, employees are definitely not going to be able to go there, but when it comes to effects and experiences, its going to be tricky. It’s going to have to be genericized. But we have to give some flexibility to help guide users in the right direction. Because if you literally have someone completely new to cannabis come into the store and ask for advice and you say, “I’m sorry I’m not allowed to provide any information to you,” and they make a poor choice and they have a bad experience, that’s on us. As an industry and government we haven’t given them the information and the tools that they need to get to the experience that they are seeking.

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Mike Babins is the owner of Evergreen Cannabis Store in Vancouver.

Has it been useful having the provincial retailer as a middleman?

The issue with the province I would say is that they add a mark-up before they send it to me. That plus I have to pay the shipping, so by the time I get it, I’m almost getting it for what they are selling it for on their retail site. So for the layman who doesn’t know, for most people, they think we are gouging them on the prices. But it is not that. It is unfair that the provinces are our main competition but they pay less than we do for the same stock. And I have spoken to them about that, but I don’t think that will change anytime soon. So we just have to deal with it.


A selection of marijuana ordered from the Ontario Cannabis Store.

Michel Comte/AFP/Getty Images

What has the process of acquiring cannabis been like?

The first few times were pretty rough for me because I was used to buying cannabis in a very different way, and I wasn’t sure what was good, but it has been a pretty smooth transition and I figured it out pretty fast. The province said to us, you’re learning as much as we are, you’re our front line, so tell us if there’s something wrong with the website, tell us if there are forms that could be smoother and easier. In B.C. anyways, they are working really closely with the retailers. So they are saying, you know better than me, tell us what’s wrong.

How do you compare the ease of the supply chain in the grey market days to its current state?

It’s comparing apples and oranges. Ninety per cent of the product in the illegal dispensaries tested positive for mould and mildew. People say, “Well, it didn’t hurt us before,” but yeah, romaine lettuce didn’t hurt you before — it happens. Everything gets tested first now, and if something goes wrong, somebody is there to pull it from the shelves. Because I know, in the grey market, if some weed has mould on it, they don’t call the person who brought it and tell them to take it back. They say, “OK we’ll just put it in pre-rolls and no one will notice.”

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