New Ontario Cannabis retail rules: will they make a difference?
Ontario Doubles Cannabis Store Cap Amid Market Squeeze.
Ontario’s move to raise the number of stores cannabis companies can operate has been welcomed by some in the industry, but an expert says the change may only help a select few operators in the over-saturated market.
This month, the Ontario government doubled the number of retail stores allowed per licensed cannabis operators, increasing the limit to 150 from the previous cap of 75.
Gennaro Santoro, senior director of strategy at EY-Parthenon, told BNNBloomberg.ca that most operators in Ontario’s saturated cannabis market weren’t able to hit the previous limit of 75 stores, so the increased retail store cap will only make a difference for a select few players.
“It may impact a very small portion of retailers that have enough stores,” said Santoro, who works with the EY Americas Cannabis Centre of Excellence.
“Besides giving the opportunity for some retailers, very few that have a presence that is even close to 75 (stores),” he said. “It's really just adding more competition to a market in Ontario which is already pretty saturated.”
INDUSTRY REACTION
One company praised the new regulations.
Raj Grover, founder and chief executive officer of cannabis company High Tide, said the policy change levels the playing field for Ontario retailers and could help companies compete with the illicit market.
It could also help his company grow, he added.
“An additional 100 locations will help meaningfully boost our revenues and power our growth trajectory over the next couple of years, further solidifying our leadership position as the largest non-franchised cannabis retailer in the country,” Grover said in a written statement following the Ontario changes.
Grover said High Tide is raising its long-term growth target to over 300 brick-and-mortar stores in Canada based on the Ontario policy change.
ASSET LIGHT
Many Ontario cannabis retailers have been struggling to reach profitability, according to Santoro, prompting many businesses to reduce spending in a bid to improve balance sheets in 2023.
Within the broader industry, Santoro said companies are seeking lower expenses.
“You've heard a lot of companies talking about (an) asset light model where they're trying to remove expenses, they're trying to get to a point where they don't overproduce cannabis anymore,” he said. “They're focused on the areas that are profitable,”
Firms that execute on this approach will see opportunities to improve market share by acquiring assets as companies go into receivership or credit protection, Santoro said.
In order to be successful in the current environment, Santoro said companies should pick areas to differentiate as they compete with other legal and black market cannabis operations.
Tilray Brands, a Canadian cannabis company that has recently expanded into beer acquisitions, reported quarterly earnings Tuesday, with a net loss of US$46.2 million as revenue increased 34 per cent on an annual basis.
