Pot’s Retail Therapy
nationalpost.com | By David Akin | October 14, 2016
The marijuana market could be (and possibly already is) bigger than the market for beer in Canada
TORONTO — It’s a hot, sunny Thursday afternoon on the hard edge of Queen Street West, and the foot traffic at Eden, a pot dispensary, is brisk.
Retailers along this strip of trendy clothing stores, bars, restaurants, shoe shops, tattoo parlours, hairstylists, comic stores and coffee joints cater to the urban hip, and Eden is no different. lnside, iceberg-blue lights illuminate jewel-case cabinets with the product — glass vials of Hindu Kush, El Hefe, Organic Blue Dream — artfully displayed.
On the aquamarine-blue wall at the front are two white iPads, for customers who need quick access to the Internet to check product information.
The place is spotless, sharp. And the air is heavy with the unmistakeable sweet smell of cannabis.
Behind the counter, two clerks, a man and a woman both in their 20s, both dressed like their customers, are filling orders, taking cash.
The average transaction, those in the business say, is $50. A pre-rolled joint is $12, but Alicia, the manager, says they won’t start selling a lot of those until the evening, when the university crowd and the kids from the suburbs come downtown.
The fridge at Eden Medicinal Society, a cannabis retailer in Toronto. (Tyler Anderson / National Post)
The afternoonwalk-ins are largely cannabis users who rely on the flowers, ointments, teas, and oils to ease some chronic ailment, or they are creative types — writers, graphics artists, filmmakers — who find extra insight and energy through cannabinoid stimulation. They all have prescriptions from a licensed physician.
The product mix and retail approach at Eden’s downtown store is different than what you will find at the company’s newest outlet a few blocks north near Bayview and Eglinton. There are more seniors and aging baby boomers in that neighbourhood so the store opens earlier and closes earlier.
The Eden outlets are among the 100 or so pot dispensaries in Toronto, but there is easily demand, those in the industry say, for 1,000 such businesses.
They are owned and operated by a mix of campaigners and capitalists.
The campaigners have been working for years to legalize marijuana use. They believe in the huge potential for the drug to manage pain, ease anxiety, and help many to a more productive, happy, creative and healthy existence.
Tania Cyalume and Brandy Zurborg opened their storefront dispensary, Queens of Cannabis, on Bloor Street West just north of Little Italy in February.
“I guess when you believe in a product, you really believe in it because you’ve seen the way that it affects people,” said Cyalume.
Queens of Cannabis owners Tania Cyalume and Brandy Zurborg outside their shop in May 2016. (Maryam Shah / Postmedia Network)
The products Cyalume and Zurborg sell and their approach to retailing match their personal philosophies and lifestyles. Both are vegans, and the edible cannabis products they stock are vegan and pesticide-free.
Their crusade is about serving patients because they are patients themselves, and use cannabis products regularly to treat their own chronic pain and ailments.
“We’re patients and we believe in it. We also believe that patients have the first right to access before recreational. There is only so much supply, and there is a huge demand,” said Zurborg, who trained as a certified management accountant designation and was an auditor with the Canada Revenue Agency.
Their goal is not necessarily to get rich. They speak of one day being able to use the proceeds of their retail operation to help fund outreach, at hospices for example, where they can spread the word about the life-changing value of cannabis products.
Marina, who preferred her last name not be used, is a capitalist. She and her husband have had as many as seven dispensaries, some through a franchise model they were trying to build. When she got into the business a few years ago, she approached with a capitalist’s zeal and eye for profit.
The woman has agreed to talk about her industry at an upscale diner set among the forest of steel-and-glass condominium towers where Lake Ontario meets the Toronto suburb of Etobicoke. She arrived in a gleaming white SUV. Petite, direct and energetic, Marina makes no bones about the fact she got into the business to make a pile of cash.
An employee showcases a large jar of marijuana on a shelf at Eden in Toronto. (Tyler Anderson / National Post)
“There was a massive market available,” she said. “That definitely was the original motivation. But as I got more into it, and as I started interacting with more patients on a daily basis and seeing the difference (cannabis) made, it has motivated me even more. But originally, it was purely the business side of me that saw a huge market gap.”
Before becoming a cannabis retailer, Marina, who has a business degree, had run her own promotions company.
Both campaigners and the capitalists are eager for the Trudeau government to do as it promised and remove the legal prohibitions hanging over their retail operations. But they are suspicious that Ottawa’s still-under-discussion plans for legalizing marijuana will favour corporate interests and freeze out the independents.
“I don’t really know what to expect from the Trudeau government. What we thought was going to happen and what has happened thus far are just completely opposite sides of the spectrum,” Marina said.
Marina, the Queens of Cannabis, and other operators of pot dispensaries fully expect that large, well-financed companies will muscle their way into the retail space once recreational marijuana sales become legal. If not them, it may be government agencies with a model similar to provincial liquor commissions.
And why wouldn’t they? Studies in the U.S. and Canada have shown in terms of annual sales per square foot, a pot retailer is a top-tier operation.
Consider this: the most productive retail space in Canada is an Apple Store, with average annual sales of $7,200 a square foot. This compares with $2,961 a sq. ft. at a Lululemon store and $1,490 a sq. ft. at Costco.
At the other end of the spectrum, the comparable figure for Sears, Dollarama and Canadian Tire is less than $250 a sq. ft. In the U.S. states where selling marijuana is legal, sales average US$975 a sq. ft.
Want to get into the pot retail business? You are going to be making a lot of money.
Of course, no one is yet sure how the retail environment will look once marijuana storefront operations are legal. Right now, the only legal way for a customer to buy pot products is through the mail from a producer licensed by Health Canada. Those producers will only sell to those with prescriptions.
But if businesses are allowed to set up cannabis shops and compete in the same way that other retailers do, Canadians could be buying as much as $10 billion worth of marijuana products a year. That estimate comes from Avery Shenfeld, chief economist at CIBC World Markets.
To put that in perspective, Canadians bought about $9-billion-worth of beer in 2015, according to Statistics Canada.
Michael McLellan, a financial consultant to the medical marijuana industry, thinks retail sales of cannabis products could be much bigger.
“This is a 10-year, bull-market run. You’re creating a new legitimate legal business for what is going to be a $10-billion to $20-billion a year market,” he said.
McLellan, who also acts as spokesman for the Toronto Dispensaries Coalition, is a chartered financial accountant. He spent a decade running a publicly traded company in the energy and technology sector.
Eden Medicinal Society in Toronto. (Tyler Anderson / National Post)
He is certainly a campaigner for legalization, but he is also campaigning for capitalism to be let loose in this space. He plans to make money selling pot.
“I’m not a big user of marijuana myself,” McLellan said. “But I intend to invest some of my own money and some of my family’s money in the stock market in licensed (marijuana) producers or other companies that are going to service … the future recreational marijuana space.”
For his work with the dispensary coalition, McLellan figures he is now spending about half his time thinking about the new opportunities and challenges that will come when the Trudeau government finally legalizes pot.
Everyone expects there to be plenty of retail competition when pot is legal and, as a result, smart retailers will be aiming at profitability by doing what any retailer does: get the right product mix at the right location in the right retail environment sold by knowledgeable, friendly staff.
Alicia, the regional manager for the Eden dispensaries in Toronto, came from David’s Tea. She can see the irony in moving from a high-end retail chain that sells dried leaves to discerning tea customers to what could be the next-generation of high-end retail chains selling dried herbs to discerning cannabis customers.
The store on Queen Street is one of five dispensaries operated by the (for now, at least) not-for-profit, Vancouver-based Eden Medicinal Society, but Alicia — she asked a pseudonym be used — is already scouting other locations in Toronto.
She is also looking for new staff who will earn a premium wage because, like those at David’s Tea or, for that matter, the Apple Store, they need to have training and specific expertise with twhat they sell.
McLellan says good pot retailers like Eden will take care to match a customer’s desired experience with the right product. It is an act of salesmanship that draws more on art, empathy and, let’s face it, the seller’s personal experience with many cannabis products.
The mix might best be described as a cross between a pharmacist — customers using new products or new doses will definitely benefit from clear instructions from the retailer on safe use — and a sommelier recommending wine pairings.
But while the sommelier is selling an “experience,” it’s not like the “experience” that a pot retailer is selling. Drink a bottle of Chablis, cabernet franc or pinot grigio and the effect on your body will be largely the same.
Good pot retailers like Eden will take care to match a customer’s desired experience with the right product. (Tyler Anderson / National Post)
“With cannabis, it’s not quite like that. There’s differences in the way (strains) smell, the way they taste, and the way they affect you,” McLellan said.
Perhaps you are a recreational user who wants a high that makes you feel good, lifts your spirits, and might even make you want to dance. Your pot retailer is likely to recommend a sativa — perhaps a little Laughing Buddha, Blueberry Dream, a Lime Haze, or maybe some Alaskan Thunder F–k.
If you’re a creative type looking to get some work done with a little chemical assistance, your retailer may point to some other sativas, such as Cinex, Super Jack or Candyland that produce a high but won’t have you wanting to nap every 20 minutes.
Beyond a bewildering array of strains, there are an increasing number of cannabis products: creams, tinctures, oils, gels and, of course, baked goods such as brownies, all designed to get the drug into your body in different ways and to different effects.
“The current retailers that sell the product, the current dispensaries that have the best level of customer service and the most knowledgeable staff are the ones that are surviving. The ones that don’t have that are closing their doors,” McLellan said.
In other words, a pot shop is like a shoe store or a travel agency. Lousy customer service will kill the business. Excellent staff will help it flourish.
McLellan and pot dispensary retailers are looking forward to a future they hope is only months, not years away, one in which Canadians can purchase cannabis products with the ease and convenience of buying groceries or wine.
“What the market is showing it wants is a clean, friendly environment, professional, where they see the quality product and they get a good customer experience,” McLellan said. “This is a brand new marketplace.”