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Pot shops lucky to be in business amid competition, advertising rules and THC limits

rolled joints in close up shot
“We’re still living the dream, it’s just the purgatory dream,” said Jennawae Cavion, the co-founder of Kingston, Ont., cannabis store chain Calyx + Trichomes. Over the last five years, she’s seen Ontario flip-flop on the store licensing process, faced rivals trying to steal business by opening nearby and survived six weeks of shipping delays after a cyberattack at Ontario’s cannabis distributor.

Tara Deschamps | The Canadian Press

Sean Kady spent most of his 20s toting around a teal tackle box that once belonged to his roommate’s grandfather. Occasionally, people would spot the box and ask to borrow a wrench, but it didn’t contain tools or bait.

Instead, the box was home to a cannabis supply Kady covertly sold to a steady stream of customers.

Kady has since gone legit, having opened Toronto pot shop Cosmic Charlies with his brother in 2021. But the money was so good in his tackle box days, he sometimes wonders if he had the right idea even though he was on the wrong side of the law.

“I have made the joke that we’ll just relinquish our licence and I’ll start selling the weed that I could get again, and I’ll make a lot more money,” Kady said.

“I would never do it, but I’ve threatened to do it for fun.”

Kady can be forgiven for wistfully recalling his past. Pot shop owners have had a rough five years.

Since Canada legalized recreational cannabis on Oct. 17, 2018, retailers have learned that supply can be spotty, competition is fierce and not everything consumers crave is available in the legal market.

The combination has pushed many to sell their businesses and put others out of the game completely.

“We’re still living the dream, it’s just the purgatory dream,” said Jennawae Cavion, the co-founder of Kingston, Ont., cannabis store chain Calyx + Trichomes.

Over the last five years, she’s seen Ontario flip-flop on the store licensing process, faced rivals trying to steal business by opening nearby and survived six weeks of shipping delays after a cyberattack at Ontario’s cannabis distributor.

Other pot stores have dealt with a strike that kept B.C. shops from getting supply, job action that affected two dozen Quebec stores and natural disasters like wildfires and flooding.

And across the country, a patchwork of laws and regulations created inconsistencies. Cannabis shops could open in some regions or cities, but not others. Display restrictions vary wildly. During the COVID-19 pandemic, temporary closures were not universal measures.

These factors have produced two tiers of pot shops, said Jaclynn Pehota, executive director of the Retail Cannabis Council of B.C.

“There are people who have finally … found their strides in the legal market despite the fact that there are a myriad restrictions and challenges,” she said.

“There’s another category of retailers, and I think that they might be in the majority in much of the country, … where they are simply not sustainable in terms of the revenue that they’re bringing in.”

In Alberta, for example, she said the median income for a cannabis shop is less than $85,000 a month.

“If you have an overhead of $10,000 in rent and $25,000 in staff costs and then licensing costs and then your products, that means there is literally nothing left over at the end of the month.”

While Kady said his business has picked up substantially in the last year, there were days when he second-guessed the decision to set up shop.

When Cosmic Charlies opened, the brothers were coping with pandemic lockdown measures as well as stiff competition — the Alcohol and Gaming Commission of Ontario counts 1,763 pot shops in the province today.

“There were so many stores and I was knee-deep in it,” Kady recalled.

“We could barely crack $1,000 a day in sales and we couldn’t even let people in the store because it was right before the lockdown ended.”

But the brothers stuck with it. Hell-bent on differentiating themselves from cookie-cutter, chain-owned pot shops with their staid white walls and wood accents, the Kadys splashed their store in ’90s-style highlighter hues and borrowed their store name from a Grateful Dead lyric.

Customers quickly learned that when it comes to weed, the duo know their stuff. They can vividly describe the kind of high their products create and have a near-encyclopedic knowledge of the 400 items in their shop — not to mention, many of the thousands more out there.

Take General Admission’s distillate infused pre-rolls. Without even looking at the box, Sean Kady can tell you they’re flavoured with fake terpenes and emit such a strong candy aroma, Charlie Kady calls them “the White Claw of cannabis” in a reference to the popular fruit-flavoured alcoholic seltzers.

“We can’t sell enough of those for whatever reason,” Sean Kady said.

“Everybody’s trying to emulate them or seems to be. Everyone’s chasing those dollars.”

Supply, however, has been an issue for some stores. Cannabis producers have introduced and discontinued products at a dizzying speed, trying to cater to shifting consumer preferences and knocking down their prices to compete with rivals. Sometimes producers can’t keep up with demand, other times buyers are barely interested.

Many customers are hard to completely satisfy because packages of edible cannabis products must contain no more than 10 mg of tetrahydrocannabinol or THC, pot’s main component. The cap was meant to encourage safe cannabis use.

“As soon as you say it’s 10 mg, (customers) are like, ‘Oh, well, I’m going to need 10 of these then,’” Cavion said.

She believes customers should be able to buy larger packages and portion out what they want to consume each time, similar to buying a large bottle of distilled liquor.

“Alcohol is extremely dangerous and nobody parcels that out,” said the Retail Cannabis Council’s Pehota.

“I can go buy enough to kill me and everyone I’ve ever met in my entire life at the liquor store right now, legally, and all they will say to me is, ‘Would you like help to your car?’”

She feels the longer the legal market is constrained by the current THC cap, the more likely people are to choose illicit channels, where Health Canada has estimated 40 per cent of shoppers still turn.

“I can buy a 1,000 mg dose, candy-flavored syrup on the internet right now for $49 and it will be delivered to my house with a free joint and a sticker in 20 minutes,” Pehota said.

Even when stores stock what customers are looking for, getting the word out is hard.

The Cannabis Act stops businesses from advertising pot in any way that would make products seem appealing to young people or evoke “glamour, recreation, excitement, vitality, risk or daring.”

They also can’t use prices in their marketing or make use of people, characters or animals, whether real or fictional, in promotions and testimonials. Endorsements are forbidden.

“Across the parking lot, they can advertise Christmas oil changes, but I can’t (really advertise for holidays) and I would argue that oil is way more harmful than the cannabis is,” Cavion said.

Sean Kady considers the advertising rules a “massive double standard,” when one considers how other vices are treated.

“I saw so much alcohol given out in the park this summer and I’m not going to lie, it really bothers me, especially with the gambling ads I’ve seen,” he said.

“You can ruin your life in a night online gambling, but (with) a joint, what are you going to do? Order pizza and a bag of Cheetos and go to bed?”

Despite the struggles, Kady keeps going and has begun to see the fruits of his labour.

Sales have picked up enough that he’s planning to open a second store and between gigs as a pot podcast host, delivery boy and budtender for Cosmic Charlies, he’s connected with likeminded people, creating a community.

“Nothing could have prepared me for taking this business that I had out of my toolbox in my basement to an actual storefront as an entrepreneur on (Toronto’s) Queen Street West, but I managed to walk through that door and live my dreams,” he said.

“It feels amazing. I don’t regret it.”

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