5 Reasons why big cannabis companies are buying Ontario pot shops

Published Aug 28, 2020 12:00 p.m. ET
iStock / Zerbor

Ontario was one of the few provinces to choose such a unique method of distribution for its pot shop licenses, but many pointed out the flaws that came with such a strange system that refused to take into account past experience or potential, and instead, focused on randomness that was fueled by some of the largest cannabis companies in the game. In this province, you had to be a lottery winner if you wanted to be among the very first Ontario dispensaries to open.

The problem with this move

At first, it seemed like the move would allow anyone to enter the draw, meaning a fair level playing field for just about anyone who wanted to get in on the cannabis industry action. Unfortunately, that notion was quickly exposed once the list of qualifications to enter the draw was finally released to the public. In order to have just a sliver of a chance at becoming a lottery winner, each person would need to meet a host of qualifications that had literally nothing to do with cannabis like:

  • A substantial line of credit
  • A business plan without a secured lease
  • Registration fees ($6,000)
  • The willingness and ability to open within 30 days if drawn
  • Criminal background check

This led to a huge rush of interested entrepreneurs who had been waiting for an opportunity to arise, but it also meant that random, everyday people were applying for the win. 33% of all applicants were well-established cannabis brands, but the rest of the pot included various types of people, including many that had little to no idea as to what they were doing.

The good news here is that the rules surrounding who could apply and how many times they could do so seem to have worked enough to let many private people into the cannabis race, but now that we’re just getting to know them, they’re disappearing just as quickly as they arrived. Privately owned cannabis stores were in majority in Ontario, and with the chance to become a lottery winner only arriving once per year, most felt elated when they won the opportunity to give it a shot.

Now, the rules in the province have changed to allow pretty much anyone to apply for a cannabis license, which means that those big cannabis companies can freely open as many stores from scratch as they desire, and yet, they are buying all of the privately-owned brands instead. Though many of these recently purchased stores won’t see a name change, their customers will very quickly notice some changes, and they might not like everything that they see.

As privately owned pot shops are being bought by large cannabis companies and brands, the amount of competition on the market, which was already lacking, will dwindle even further, which could undo much of the progress that’s been made as far as pricing. It also means that cannabis brand selection may dwindle, as large brands will only sell their own products, leaving much to be desired for consumers who prefer a variety to choose from.

Are there any benefits to this shift for consumers?

There are very few benefits to this shift for consumers, as this sort of monopoly does typically result in less variety and competition, but if you want to know that you’re buying the same products every time you go, then you might be happy with this kind of consistency in your life, as many privately owned dispensaries will rotate various brands as they have difficulty keeping the same products consistently in stock.

The reason they are doing it

Big cannabis brands could set up shop on their own after applying for a license under a different name, rather than buying all the small retail stores in the region, but if they did that, then they wouldn’t get the long host of benefits that come with purchasing a dispensary that is already running successfully.

1. Brand awareness in the cannabis industry is nearly non-existent

Cannabis enthusiasts are loyal to the names and brands that they know, and since there is no real way to advertise to customers in the province, buying a ready-made dispensary allows big cannabis companies to slide their own things into a familiar surrounding. This guarantees any pot shops success, and it can make or break any business, so it’s more of a guaranteed investment than starting anew.

2. A well-established customer base

Dispensary customers are creatures of habit that tend to swing by anywhere from once a week to once a month to refill their stash. They know exactly where they need to go to get what they want, and they’ll keep coming back with little to no effort from the store that they make purchases through. This is prime real estate for big cannabis companies and a stage of operation that can take more than 2 years to match from scratch, so most would rather forgo the uncertainty in exchange for a bit of extra cash.

3. The red tape makes setting up a new cannabis business difficult

Technically, anyone can open a dispensary from virtually nothing, but there is plenty of red tapes that is expensive, time-consuming, and difficult to breakthrough. Most Ontario dispensaries take several months to get up and running, and that’s after the initially planned phases are over, because the wait times to get everything from licensing to inspections and municipal permission can exceed months and roll into years if you’re not careful. Though not impossible, most big pot companies would rather skip over the formalities and get right to the money-making.

4. Owners are more than willing to move at the right price

One of the biggest things here is that private owners are so easily rolling over and accepting financial compensation in exchange for giving up the rights to their dispensaries. Some have realized that this isn’t the market that they’d prefer to be in, and others have received payouts so high, that no one in their right mind could turn them down, which leads us to our next point, a healthy check book.

5. Big corporations have the funds to do it

The same as it is with any other market or industry, it’s a good idea to either make friends with or destroy the competition, and in this case, the way to do that is with tonnes of money which is something that larger corporations have plenty of. Be it through financial investors, or personal wealth, some of the biggest cannabis companies in the world are living it up out there quite comfortably these days, which means that they’ll have the advantage to spend the extra capital to get started and eliminate competition in one blow.

In conclusion

Though it’s certainly good to see that Ontario dispensaries are flourishing so well that larger corporations are jumping in to get in on the action, this isn’t a good thing for consumers in any way that matters, and it takes money out of the local communities. When you can shop local in privately owned stores, and support their cannabis brands, you determine the future for both consumers and the industry alike, turning it into something that, at least, somewhat resembles what we all truly wanted in the first place.

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