Matt Maurer speaks to Yahoo Finance on cannabis sales
Matt Maurer, of Torkin Manes' Cannabis Law Group speaks to Yahoo Finance on cannabis sales during the COVID-19 pandemic.
Sales up 100%, down 40%: How one pot shop rode the COVID-19 rollercoaster
Shiny Bud opened on February 13 with high hopes of capitalizing on a prime North York location next to the notoriously busy Highway 401. The new pot shop has big box retail neighbours like Canadian Tire and The Real Canadian Superstore, and an LCBO, to lure a steady stream of customers to its door.
Having cleared the province’s regulatory hurdles to get the business approved, the staff of about 40 workers were starting to see rising sales driven by growing customer loyalty.
“We were looking forward to aggressive growth pretty much immediately. We had a nice momentum going,” said Badyr Valcarcel, Shiny Bud’s director of retail operations. “All of a sudden, COVID-19 hit and basically brought everything to a standstill for us.”
Since its inception nearly two years ago, legal recreational cannabis in Canada’s most populous province has been a realm of uncertainty for businesses. A change of government led Ontario to rethink its mix of public and private ownership. On the first day physical stores were allowed to open last April, only one did. The province still lags behind the store count of its neighbours. Supply challenges have been a fixture. So has fierce competition from the less expensive illegal market. While the ongoing pandemic has caused mass upheaval in retail writ large, most in the cannabis business have never known stability.
“If you’re an operator in the cannabis retail sector, you by your DNA at this point are nimble and innovative and resilient,” said Michael LeBlanc, senior retail advisor for the Retail Council of Canada. “I’ve talked to merchants who left traditional retail businesses, and they said ‘you ain’t seen nothing until you’ve been in the cannabis sector.’”
His organization was among those who appealed to the Ontario government to let private retailers operate online during COVID-19.
In its efforts to contain the spread of the virus, the Ontario government issued a list of essential workplaces allowed to remain open on March 23 that included “cannabis stores and cannabis producers.” Those businesses were dropped from an updated list issued on April 3, forcing pot shops to close for an initial period of 14 days after April 4.
On April 7, the province passed an emergency order allowing pot retailers to temporarily sell through click-and-collect and delivery channels. Online sales and delivery had previously been exclusive to the government-run Ontario Cannabis Store (OCS). The province has said the order will remain in effect while Ontario is under a state of emergency.
For Shiny Bud, the first climb on the COVID-19 rollercoaster was panic-buying as consumers braced for long stays at home, uncertain of when they could buy cannabis in person again, or if home deliveries from OCS would continue at a normal pace as the virus spread.
“The traffic coming into the store was specifically due to the fact that people were wondering whether or not cannabis was going to be available through the shutdown,” Valcarcel said. “We did see close to a 100 per cent spike in sales on a couple of days.”
His account fits with data from Statistics Canada showing a 19 per cent spending spike in March compared to February as customers stocked up ahead of COVID-19 stay-at-home-orders.
But the boom for Shiny Bud was short-lived. Valcarcel said sales dropped 40 per cent as the panic-buying spikes smoothed out. The store was forced to reduce its hours and lay off a “huge percentage” of its staff before being forced to close its doors. Valcarcel said between six and eight workers were kept on to manage click-and-collect sales when the province announced such transactions would be allowed.
With pot stores able to open to customers as of May 19 under the province’s first stage of reopening, Shiny Bud has taken precautions to make shoppers feel comfortable inside the store again. Sneeze guards are in place at the counters, only five people are allowed in the store at a time, security guards check IDs without touching them, and everyone gets their temperature checked with a contactless device before entering.
Valcarcel estimates revenue is still just 60 per cent of pre-COVID levels. He hopes to qualify for the Canada Emergency Wage Subsidy to help cushion the blow as more workers return to the store. The policy allows eligible businesses to receive a subsidy of 75 per cent of employee wages for up to 24 weeks.
“Click-and-collect was a lifeline for us,” he said, recalling the weeks where online sales were the only way to stay in business. “Since we’ve been operating under the restrictions [for physical store openings] at this point, we are seeing click-and-collect be approximately 75 per cent of our sales.”
Toronto-based lawyer Matt Maurer provides business and regulatory advice as co-chair of the cannabis practice at Torkin Manes. He said some of his clients are wary of further investment in e-commerce, since it’s unclear if stores will be allowed to maintain digital sales permanently. Others, he said, are weighing the risk of installing pick-up windows and drive-thrus, both of which are currently permitted but may not be in the future.
“I think anything that we can do safely which makes for a better customer experience and makes conducting transactions easier should be kept permanently,” he said in an email. “It will only help reduce the prevalence of the legacy market.”
“With the whole COVID-19 pandemic happening, buyer behaviour is changing,” he said. “We hope to be able to evolve with them.”
This article was originally published in Yahoo Finance Canada.
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