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Is the cannabis retail industry about to go into the weeds?
When the federal government legalized Mary Jane in 2018, people were tripping over themselves to open stores, but in Manitoba the market was initially limited to operators meeting certain requirements. Then, the leash was taken off the market and the number of outlets exploded.
Based on a rough count on the Liquor Gaming and Cannabis Authority website, Manitoba is home to 210 cannabis outlets, with 128 of them in Winnipeg. Some of the names are, shall we say, trippy: Wowkpow, The Budstop, Mistik Cannabis, Krahnic Kulture Stop, Four20 Giggles, Altona Motor Hotel. (OK, I’m joking about that last one being trippy, but it is listed as a retailer.)
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Perhaps the award for best pot-shop name goes to Happy Rock Cannabis in Gladstone, which perhaps is a new reason the town’s stony mascot is always smiling.
How many are too many? Certainly, it appeared after that secondary boom that some Darwinian math was about to rule.
That consolidation is already underway, with Delta9 Cannabis seeking court approval under creditor protection to sell its retailing arm to Fika Herbal Goods, which owns Fika Cannabis, Friendly Stranger and Fire and Flower, the latter having three stores in Winnipeg, and one store each in Portage la Prairie, Selkirk and Swan River. Fika would repay about $40 million of Delta9’s debt in the process. The deal would not affect Delta9’s growing and processing operations. Delta9 operates 13 stores in Manitoba, eight of which are in Winnipeg.
In 2022, Canopy Growth, which operated the Tweed stores in Manitoba, exited the retail business to focus on online sales and sold its stores to OEG Retail Cannabis, which rebranded the stores Tokyo Smoke. That company operates six stores in Winnipeg.
Last week, I wrote about declining liquor sales. I suspect the growth of the pot business is having an effect. The prospect of a party on Tuesday with no hangover Wednesday is certainly appealing to some users.
How profitable is pot? According to Cannabis Retailer, in August of 2023 monthly sales per store in Manitoba were $81,577 on average. Monthly sales across Canada are more than $100,000 per store, the same article says. According to Nathan Mison, president of Diplomat Consulting, an Ottawa-based firm specializing in regulated industries, Canada’s cannabis retailing sector has reached saturation. Quoted in the Cannabis Retailer story, Mison said despite the numbers, the industry’s profits aren’t necessarily smokin’, even if its customers are.
“The challenge is when the distributor (government) takes 40 to 60 per cent off the top… there’s not a lot of margin left between rent, cost of goods and fixed labour costs,” he said.
Competition is healthy for now, and it’s worthwhile to shop around. Or so I’m told…
When it began planning for the legalization of pot, the Manitoba government set a goal of no Manitoban needing to drive more than 30 minutes to get a fix. With six stores within a five-minute drive from my home, I’d say that goal is well exceeded.
If past experience from other industries is any indication, consolidation is on the way. Whether it’s a company seeking to boost revenues through expansion, or by buying and then shutting down a nearby competitor, expect to see the store count start to fizzle.
Just as long as one operator doesn’t bogart all the profits, that is!
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