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Based on US Experience, Canadian Cannabis Demand May Support More Stores

With Legalization Two Weeks Away, Executive Forecasts Underserved Market
October 3, 2018

Mary Jane's Pot Shop in Eugene, Oregon, is one of many cannabis stores open in the United States, where cannabis locations are plentiful compared to the country's northern neighbor.

Based on the experience of legalizing marijuana in the United States, Canadians can expect to see packed cannabis retail outlets because there just won't be enough stores ready for when pot becomes legal this month, signaling potential for more retail expansion, an industry executive predicts.

Nick Pateras, vice president of growth and international strategy with Lift & Co., a Toronto-based cannabis media and technology firm, said in the U.S. states of Colorado, Washington and Oregon where marijuana is legal, there is one cannabis store for every 10,459 people, which compares to an estimate of about one for every 25,161 people in Canada.

Nick Pateras of Lift & Co. said Canada won't have enough retail stores open when cannabis becomes legal this month, based on U.S. experience. Photo credit: Garry Marr, CoStar Group.

"When we look at those states, we have seen there is a real need for brick and mortar," Pateras told an audience at the International Council of Shopping Centers conference this week in Toronto.

He expects stores to be very crowded once cannabis is legal across Canada on Oct. 17, making the country only the second federal jurisdiction to do so after Uruguay. "In theory, we are underservicing this customer," he said.

Even with a decision by the Conservative government to allow private retail operators to open stores, he expects Ontario will be underserved, noting that "Colorado has a third of the population but twice as many stores."

Pateras said online sales, which will be controlled in Ontario by the province, will never be replaced by customers wanting to go into stores to buy the product. He noted the Liquor Control Board of Ontario generates only 0.07 percent of sales online.

"You cannot replicate the type of education this consumer needs in an online shopping channel as you can in bricks and mortar. That's true in any category but particularly true in cannabis," he said, pointing to customers who may not have consumed in years while others may only have consumed through the black market.

Pateras said U.S. markets have shown consumers want to see the cannabis product before they buy it, making it a very tactile experience. "They want to be able to smell it," he said.

The last-minute buying experience associated with alcohol, with people dropping into a liquor store to buy a bottle of wine, will probably be mimicked for cannabis. "Many purchases are for short term. I don't have the statistics for how many liquor store sales are from 5 p.m. to 9 p.m. but go to any LCBO store, and you’ll see the lines," he said.

Pateras said a single store could generate $2 million in annual sales, creating leasing opportunities for landlords. He expects opportunities for private label retailers as well as price compression at the bottom end of the cannabis market created by an oversupply of the product.

"There will be a gap at the top of the market. Retailers that might have private labels with severe discounts might have a niche for themselves higher up the price point ladder," he said.

Garry Marr, Toronto Market Reporter  CoStar Group   

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