Six ways Canada’s retail scene could feel the effects of cannabis

 —  Article by Aliya Djebli

people queue up outside a cannabis store

When Canada officially legalized cannabis in October, crowds lined up at newly-opened stores selling the product from coast to coast.

Landlords, always on the lookout for new businesses looking to set up shop, took note.

The sale of cannabis is expected to increase retail activity throughout the country, generating up to $4.34 billion in 2019, according to Deloitte.

“Retail sales will skyrocket,” says Brodie Henrichsen of JLL Vancouver. “This will have a major impact on the industry, much like the cellphone boom in the late 1990s and 2000s, which created a whole new segment in the market and led to the opening of a plethora of mobile operator stores.”

While it’s too early to know the full impact of legalization, here are six outcomes that look likely:

  • It will create jobs

Store openings could create as many as 12,000 retail jobs over the next 18 months, says Henrichsen.

“Some of the positions are likely to be short-term, to facilitate the growth spurt of the industry,” he says. “But many will be longer lasting.”

  • It will help landlords lease vacant space

In Alberta, which is set to become Canada’s cannabis industry leader, demand for retail space is nearing 500,000 square feet, according to JLL.

Most of these retailers are looking at space that has been vacant for a while, helping landlords fill hard-to-lease spaces. Vacancy is already ticking down as a result.

  • Cannabis companies will pay premium rents

Cannabis retailers will likely pay a 10 to 25 percent premium on rents, says Ryan McGrath of JLL Toronto. This is a way for landlords to hedge their bets and counter the uncertainty surrounding this emerging industry.

“Many landlords fear that cannabis companies don’t have the necessary financial backing to ensure that their rents will be paid,” says McGrath. “This is because traditional lenders are still adjusting to the new industry.”

  • It won’t drive up rents for other retailers

Despite the “cannabis premium” the remainder of the retail market shouldn’t experience further pressure on rents, given that they are mostly filling vacant spaces – which are abundant.

Additionally, cannabis retailers are restricted by municipalities, which prevent them from setting up shop within a certain distance from other cannabis retailers. This prevents competition with other purveyors and thus, alleviates pressure on rents.

Canadian provinces have also limited the number of cannabis licenses. These checks and balances vary widely from province to province depending on how welcoming each government is to the industry and how they want to control its growth, says Thomas Forr, Research Manager for JLL Canada.

  • It will incite creativity

To attract experience-seeking customers, cannabis retailers know that they will have to outdo themselves. Don’t expect to see second-class stores in the outskirts of cities, says Michael Calderone of JLL. The new cannabis street-front stores will be big, bold and impressive.

“You will be surprised by the level of creativity and innovation retailers have been investing in these shops,” Calderone says. “Picture a cross between an Apple store and a pharmacy.”

In Alberta, for example, the 250 stores that are set to open by the end of 2019 will measure to 2,000 square foot on average, and feature strong design elements, according to JLL research.

The leading retailer, Nova Cannabis, opened five stores across the province, ranging from 2,500 to 3,500 square feet. These cutting-edge showrooms offer sleek and modern interiors with bright lights and glass displays of products and accessories. They feature sensory pods so customers can see and smell cannabis plants, as well as iPads where customers can explore the products’ properties.

  • It will disrupt the liquor industry

Cannabis and liquor are both highly regulated sectors – and it’s possible that cannabis will capture some of liquor’s customers, leading to a decrease in alcohol sales, says Forr.

As a preventative measure, some liquor producers are trying to get a foothold in the cannabis market.

“They are hedging against this potential threat by investing in cannabis companies such as Canopy Growth and Aurora Cannabis,” Forr says. “In doing so, they will likely be able to develop new cannabis-infused beverages and reap the benefits of this flourishing industry.”

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