In the early, heady days of cannabis legalization, owning a licensed pot store was seen as an easy way to make money. Today, it’s seen by many as a liability.
That sentiment was thrust into focus this week after Canopy Growth Corp., one of the biggest and most capitalized cannabis producers in Canada,divest its 28 Tokyo Smoke and Tweed retail shops to OEG Retail Cannabis, a firm controlled by Edmonton’s Katz Group, and Alberta’s 420 Investments Ltd. for an undisclosed sum.
“The majority of these retail businesses were built off of a model that wasn't going to be sustainable when we started to see pricing compression in addition to not being able to control the cost of goods,” said Krista Raymer, founder of retail consultancy Vetrina Group, in an interview. “The [retail] business structure was largely unknown and didn't plan for the flexibility when we would see more competition.” Canopy bought Hiku Brands Company Ltd.
“In the case of Tokyo Smoke, scaling a retail environment and building a franchise structure is very, very difficult,” Raymer said. In addition to facing pressure from nearby competitors, which hurts retailers’ gross margins, pot-shop owners also face onerous restrictions on marketing and the still-looming threat of illicit operators that aren’t beholden to the rules and taxes that the legal industry must abide by.
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