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Cannabis 2.0 is upon us, but are retailers ready for the influx of new products?

Cannabis 2.0 is upon us, but are retailers ready for the influx of new products?

Sitting on a bench outside the Hunny Pot, the first cannabis retailer to open its doors in Toronto, three friends spark a pre-rolled joint they bought inside only moments earlier.

This scene wouldn’t have been possible little more than a year ago. Smoking cannabis in public wasn’t legal, neither was buying it in brick-and-mortar shops. Back then, the retail space that now houses dozens of dry leaf and oil products was only used to host the occasional pop-event after long-time tenant New Era, a hat retailer, vacated it.

We’re going to have to evolve on a weekly basis

Hunny Pot’s Cameron Brown

Change has been swift in the cannabis space and outside the Hunny Pot, one of the three 20-something friends is looking forward to more. In December, retailers will begin selling a host of new cannabis derivative products, including edibles, vaporizers and beverages in a second wave of legalization that the industry has dubbed cannabis 2.0. It has taken just a year for the next phase of legalization to occur, but for one of the friends, it hasn’t been fast enough.

“I don’t want to f–k up my lungs anymore,” the man said, eyes watery after taking another puff from the joint.

Cannabis 2.0 will test how quickly retailers such as the Hunny Pot and the licensed producers that supply them are able to adapt. The introduction of extracts is estimated to add an additional $2.7 billion to the cannabis market, according to Deloitte, but as producers add dozens of new products, retailers may already be facing a crunch in terms of how much of it they can actually carry.


Customers at the Hunny Pot store on Queen Street, Toronto. The layout was meant to be minimalistic.

Peter J Thompson/National Post

The Hunny Pot’s layout was meant to be minimalistic, according to spokesman Cameron Brown. The store is divided into four small floors and only two of them have product on display in a series of glass cabinets and hexagonal-shaped tables. Customers can find CBD products on the third floor, THC products on the fourth and accessories in glass cabinets on both.

Brown said the store has little more than 100 SKUs on display from a total of 350 that it stocks. After cannabis 2.0 arrives, that last number might triple. And so Brown and the Hunny Pot find themselves at a crossroads: They can either sacrifice its minimalist aesthetic, or choose not to carry a significant portion of the new products.

At least to start, the Hunny Pot is heavily leaning toward the second option. Brown says the store may decide to order less than 25 per cent of the products that will be made available on Dec. 16 after a 60-day moratorium begins. The Hunny Pot doesn’t know what these products will taste like or how they’ll be received — no one does — and so they’ll be forced to be agile and adapt quickly to customer preferences.


Products on display at the Hunny Pot store on Queen Street, Toronto. The store has little more than 100 SKUs on display from a total of 350 that it stocks. After cannabis 2.0 arrives, that last number might triple.

Peter J Thompson/National Post

“We’re going to have to evolve on a weekly basis,” Brown said. “You’ll know very quickly what’s moving, what’s not and what’s going to continue to sell.”

The rotation system that the Hunny Pot and other retailers are planning to implement won’t flatter licensed producers. Unlike in the alcohol industry, regulations stipulate that producers cannot buy shelf space and can have no influence on where their product is displayed — or if it’s stocked at all.

Not wanting to overwhelm retailers, producers are staggering the release of new products.

Canopy Growth Corp. president Rade Kovacevic said the company has 50 new products in its pipeline but is planning to have what he would only describe as a “core part of the portfolio” available in December, with the rest hitting shelves over the six months that follow.


New Hummingbird Chocolate production line at Canopy Growth Corp. in Smith’s Falls.

Tony Caldwell/Postmedia

At OrganiGram Holdings Inc., CEO Greg Engel is planning a similar approach that will see vaporizers and vape pens available on Day One, cannabis-infused chocolate during the first quarter of 2020 and a dry powder beverage in the second quarter. The company is only planning to have 24 SKUs.

Of the new products that will be made available, retailers have concluded that beverages will likely take up the most space, given that some will have to install refrigerators to serve them cold. That played a role in OrganiGram’s decision to push forward with a dry powder beverage mix instead of a bottled drink, Engel said.

“Our strategy with beverages is we’re only launching a dry powder beverage because we did look at shelf space,” Engel said.

Besides concerns over the preparedness of individual retailers, Engel said some provinces don’t have sufficient retail space for the expansion. Ontario will expand its cap on the number of cannabis stores from 25 to 75 by the end of the year, but still pales in comparison to Alberta, which has more than 250 locations.

Even with 75 stores in Ontario, consumers may have to accept that they’ll have to visit different stores in different cities to find a specific product they’re looking for. Complicating matters, Brown said the province has approved some locations that are planning for just 800 to 1,200 square feet of retail space.

In Ottawa, Mimi Lam’s Superette has over 3,000 square feet in retail space in a store that was built for constant change. Lam already knew that extracts would soon be hitting the market and planned ahead of time to make an easy transition.

The shop has a deli bar complete with a white-box menu above it. Both are advertising mostly pre-roll and dry leaf products but it’s easy enough to picture edibles in their place. Instead of rushing to put in refrigeration units by December, Lam already has two vintage ones set up for decoration that can be fully functional to store and display beverages.


The Superette cannabis store on Wellington Street West in Ottawa.

Postmedia

That versatility should help with Lam’s plans to buy “wide and shallow” in December by bringing in a large number of products in small quantities, seeing what moves off the shelves and quickly rotating different products.

“What we recognize is supply, introduction of new products and brand is going to be in so much flux over the next six or 12 months, that we are not looking to be beholden to setting precedence in how we make those decisions,” Lam said.

Fire and Flower Holdings Corp., which operates more than two dozen stores across the country, uses modular shelving that can easily be removed and replaced with refrigeration units, according to CEOTrevor Fencott. He said he is unconcerned about making changes to the store layout, as he doesn’t think retailers will see hundreds of new products all at once.

The exception, he said, is in Saskatchewan where retailers can buy their product directly from licensed producers and guarantee that it’ll be on shelves in December. In other provinces such as Ontario, where the government buys the product from producers, has it shipped to a warehouse and then makes it available for individual retailers, delays are to be expected.

“Look what happened with 1.0 — and that was dry cannabis,” Fencott said.

Depending on how successful the new products are, the Hunny Pot has more drastic plans that would see three walls potentially being torn down to make additional space, spokesman Brown said. In the meantime, there will be many adjustments made on the fly.

“We’re going to have to out product really quickly if it doesn’t sell and try something new,” Brown said. “That’s where the responsibility is going to come down on the LPs to provide a quality product for the consumer because if they don’t, they might not have a second chance in these stores.”

Financial Post

Email: vferreira@nationalpost.com | Twitter: VicF77

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