Running a cannabis retail store can be very challenging. In this blog post, we’ll share issues retailers currently face to help business owners prepare for success.
Thanks to delayed licensing, cannabis entrepreneurs across the country have had their business plans thrown out the window. The scope and magnitude of this is different per province.
For example, in BC, most stores in the licensing process are awaiting their municipal and provincial licensing to go through. BC has mentioned that they are in no rush to license new stores to ensure that there will be sufficient stock. Many soon-to-open stores anticipate an opening date of late March or early April 2019.
In Alberta, stores that didn’t make it through the first round of licensing in October 2018 had to wait several months for a shot at the second round. As of February 2019, the AGLC has been inspecting stores again, hinting that the second round might be around the corner.
Ontario is notorious for the 25 randomly selected lottery winners. The winners face strict ownership regulations and a requirement to be open for early April or face hefty fines. With only 2 months to finish construction of their stores, many are faced with truly daunting challenges.
As with all newly-regulated industries, licensing will open up over time. If you’re planning on entering the cannabis space, you must be able to withstand at least six months of possible delays.
Not enough stock
It’s not news that there hasn’t been enough legal cannabis supply to go around. It’s often the case that stores can only open for 4 or 5 days a week, or to limit the maximum quantity of products sold per-sale. This isn’t something limited to private retailers—government run stores have experienced it too. For example, the Quebec Cannabis Corporation’s stores were forced to open only 4 days a week in late 2018.
The problem stems from many different sources:
- The majority of large LPs are still building out growing capacities. Despite high stock valuations, it still takes a long time to build out a facility, get licensed, find talent, and grow successful crops.
- Provincial distributors only make supply deals with a limited set of licensed producers. This further limits the available inventory to private retailers.
- It is more lucrative for LPs to supply the medical market and internal exports market.
Industry experts don’t have clear answers on when they believe supply issues will be resolved—estimates range anywhere from later this year to 3 years from now. If you’re starting a cannabis retail business, it’ll be critical to prepare for days when you don’t have enough product for your customers.
Unknown batch THC/CBD levels from provincial wholesalers
At this stage in the cannabis market, most customers are aware of just two cannabis compounds: THC and CBD. The vast majority of recreational cannabis purchases are purely based off of the THC number. As a store, it’s in your best interest that you stock as many high-THC products as possible.
However, that is difficult to do when your order does not have any guarantees on THC % values. There have been numerous times among Alberta retailers where money was spent purchasing cases of cannabis that had a significantly lower THC % than advertised, resulting in products that either don’t move or have to be heavily discounted.
As a business owner, pay close attention to the consistency of products over time. If you can ensure that products from certain LPs can maintain the THC levels you’re looking for, you can feel confident in your inventory decisions. Always account for the possibility of purchasing $10,000 worth of products that none of your customers want.
Restrictions on marketing
Most businesses have big dreams about their stores’ marketing and brand. However, once Health Canada stepped it, they made it very clear that most activities such as advertising and displaying prices were simply not compliant.
An excellent resource on this can be found here.
Confusing barcode labels
Legal cannabis products come with a wide variety of barcodes—some stick with just the UPC (regular barcodes), some ship with a GS1 Databar (multiple barcodes stacked on top of each other), and some ship with both. On top of that, some LPs print poor quality barcodes onto their packaging that many or may not scan successfully!
The lack of consistency makes things difficult for inventory managers who have a vision of 100% of products being barcode scanned. Every time employees are forced to manually look up a product is an opportunity for inventory discrepancies—it’s easy to accidentally select a 3.5g instead of a 1g product. On the bright side, LPs are already under pressure to improve their packaging, and retailers do not expect these barcode issues to be a long-term problem.
If you’re a retailer, you must take the following two points into account:
- Can your POS system scan GS1 stacked databars? This will require 2D barcode scanners, which are often more expensive than basic 1D scanners.
- Can your POS system convert the GS1 stacked databars into regular barcodes? Stacked barcodes are different for every cannabis batch, but tracking at the batch level is not required in Canada.
Many of these challenges will be resolved over the months and years. In our opinion, stores that run as lean and efficiently as possible will be best poised to capture the opportunity of increased supply and edibles/concentrates later this year.
At Greenline POS, we see it as our mission to help cannabis retailers succeed. During times of uncertainty, have peace of mind knowing that we know what retail is really like, and that we are here to help.