As legalization nears in October, the spotlight is shifting from marijuana growers to sellers, igniting frenetic activity among prospective store owners, commercial real estate players, cannabis producers and all levels of government
In other places in the province, retailers are signing leases with rents that are as much as twice the usual rate, in the hope they will eventually win the right to sell marijuana in those locations.
In Ontario, veteran retailer Michael Serruya says he has identified 27 future locations for cannabis shops – even though the province’s new government hasn’t officially said whether it will allow a single privately owned store to sell recreational marijuana.
It’s the next wave of the green rush: As legalization nears in October, the spotlight is shifting from marijuana growers to sellers. That has ignited frenetic activity among prospective store owners, commercial real estate players, cannabis producers and the federal, provincial and municipal governments that have designed a thicket of rules about how and when the drug can be sold to consumers.
In a store on Santa Monica Boulevard, Mr. Serruya found what he was looking for. Surrounded by slick wood furnishings, security guards watch over crowds of consumers hovering over display tables as they inspect and sniff encased samples. It’s a sleek retail operation that has the high-end feel of an Apple store – only instead of the latest tech gadgets, people line up here to buy a US$20 brownie or an eighth of an ounce of dried flower for US$60.
The location is one of 14 dispensaries run by U.S.-based MedMen Enterprises Inc., a company that went public in Canada in May and has plans to expand here. It’s a far cry from some of the “disgusting, horrible,” spray-painted “pot head” stores that Mr. Serruya says he saw on a recent trip to California and other pot-friendly U.S. states in search of a model for his own nascent marijuana-retailing business.
“Everyone is trying to figure it out,” says Mr. Serruya, whose family private-equity firm has stakes in other cannabis-related businesses as well. For one, he sits on the Second Cup Ltd. board of directors and is leading a push to breathe new life into the challenged coffee chain by converting some of its cafes into standalone cannabis dispensaries in Canada.
A mixed bag of players is aiming to cash in: provincial governments, growers, new companies hoping to open anything from one store to a big chain, Indigenous groups, U.S. dispensaries such as MedMen and existing domestic retailers ranging from grocery giant Loblaw Cos. Ltd. (which also owns Shoppers Drug Mart and a stake in landlord Choice Properties REIT), to Second Cup and Edmonton-based liquor store outfit Alcanna Inc. (formerly called Liquor Stores NA).
“There’s going to be a gold rush – there’s going to be winners and there’s going to be losers,” said Edward Sonshine, chief executive of RioCan Real Estate Income Trust, one of the country’s largest mall landlords. RioCan has already signed 18 cannabis-dispensary leases in Alberta, Ontario and British Columbia.
Like many, they’re basing their plans on what they think Ontario regulations will look like after a report last month in The Globe and Mail that the newly elected Progressive Conservative government will turn to the private sector for brick-and-mortar cannabis retailing, scrapping a model of government-controlled sales. The Serruyas and others presume the Ontario rules will be similar to those in Alberta, which is looking to dole out about 250 licences to private retailers in Year One.
For months, potential players from coast to coast have been grappling with a web of often confusing and sometimes shifting regulations from the federal, provincial and municipal governments. Rules include specified distances from schools, churches, playgrounds, daycare centres and other cannabis dispensaries, which narrow the options. Municipalities are weighing in with zoning constraints – or outright bans in some cases.
For years, legal cannabis producers have garnered attention as the most direct opportunity for investors to get a piece of the nascent sector. Under Canada’s medical cannabis regime, producers operate mail-order businesses – the only permitted retail method.
“It’s unprecedented – there’s never been anything like this in commercial real estate in Alberta where we’ve had one category just fresh onto the scene seeking locations,” said Michael Kehoe at retail-real-estate specialist Fairfield Commercial in Calgary. “It was like a green rush of demand for retail space in the past year or so.”
Since January, Alcanna, the country’s largest privately owned liquor retailer, has acquired leases in Alberta for as many as 50 to 60 locations where it could open a cannabis store, although it will be allowed to operate only 37 stores, the maximum permitted for a single retailer under provincial regulations in Year One, said James Burns, chief executive of Alcanna.
Despite the high rents, Alcanna will hang on to the best locations and bear the costs until more licences become available in Year Two, Mr. Burns said. In Edmonton, for example, the retailer has taken a lease for a store on the tony White Avenue but doesn’t expect to get a licence for the site because of its chances in a lottery, he said. Still, Alcanna plans to build a cannabis education centre offering some accessories and other unregulated products to take advantage of the prominent site and try to build its brand, he said.
But federal regulations forbid retailers from overtly marketing cannabis products and claiming a positive or negative effect of product use, while provincial rules ban them from stocking merchandise openly in the store, instead requiring that the goods be locked away in a secure showcase or back room. The pot itself must be stored in sealed containers to ensure no weedy odour.
While Ottawa is regulating cannabis production, store advertising and packaging, the provinces are responsible for setting a retail model, and wholesaling legal product to stores. In all but two instances, provinces will run the only available legal online stores. In provinces that are allowing private-sector retailers, such as Alberta, the municipalities control where pot shops can open through zoning and other development restrictions. The province completes the process by handing out retail-cannabis licences.