By Dario Jeginovic, MSc
Associate Consultant, CannDelta
April 15th, 2020
Cannabis Retailers Deemed Non-Essential
The Ontario cannabis retail industry has experienced a recent whirlwind of developments in the wake of the COVID-19 pandemic. On Friday, April 3rd, 2020 the Ontario government released a revised list of essential services that would be allowed to continue with operations at a limited capacity. The original list, announced on March 23rd, 2020by Premier Doug Ford, included 74 essential services while the revised list was down to 44. A notable omission from the revised list was cannabis retail stores. With the new emergency order, all non-essential businesses in Ontario, including cannabis shops, would have to close their doors by 11:59 p.m. on Saturday, April 4th, 2020 until further notice.
Retail store owners and operators expressed unanimous disappointment in having to shut down their businesses while related businesses like alcohol retailers could remain open. Consumers expressed immediate concern in how they would continue to access legal cannabis products in a timely manner. With physical retail store locations closed, the Ontario Cannabis Store (OCS) would be responsible for meeting the demand and fulfilling orders for all cannabis retail transactions across Ontario; no small feat. Further concern also stems from the fact that the OCS does not offer delivery services to numerous regions across Ontario. Not surprisingly, federally licensed cannabis producers took the side of the retailers, as reducing the number of supply lines for their products to get to consumers in the largest market in Canada would exacerbate the growing issues with inventory oversupply at the producer level with bottlenecking at the retail level due to already limited stores. While medical patients with a prescription could continue purchasing cannabis directly from producers holding a federal medical sales licence, the same could not be said for the countless consumers who rely on recreational retailers to access their cannabis to take advantage of the plant’s medicinal properties.
The Industry Responds
In response to the revised list of essential businesses, the Ontario cannabis industry and consumers alike came together to express their collective concerns to the Ontario government. A petition to Doug Ford started by Wikileaf.com quickly made its rounds and amassed a resounding 4,500 signatures. In addition, on Monday, April 6th, an Ontario cannabis retail working group of over 200 representatives from retail owners, workers, producers, advocates, consultants and lawyers, joined together in a virtual meeting aimed at determining a plan of action in addressing this major hit to their industry. Collectively, the group composed a letter to the Ford government, signed by the participants, urging them to reconsider their position on the matter. The letter highlighted that shutting down local cannabis retailers would severely impact their bottom line while also hindering the nascent industry’s ability to compete with the illicit market. With access to cannabis becoming limited due to the restrictions, consumers would likely turn to illicit sources such as unregulated delivery services which offer same-day delivery of non-federally approved cannabis products delivered right to their door. This would increase the risk of rolling back the significant progress that the regulated industry has made towards enhancing legal access and curving the illicit market to date.
The Government Listens
On the evening of Tuesday, April 7th, 2020 less than 48 hours after the industry letter to Doug Ford was submitted and just five days after the release of the revised essential services list, the Ontario cannabis industry rejoiced as news of an emergency order from Ottawa was enacted to reopen legal cannabis stores by offering curbside pickup and – for the first time ever – home delivery. According to a spokesperson from the Ministry of the Attorney General, the order was signed into law by the Lieutenant Governor in an effort to enhance access of cannabis to consumers and to limit reliance on the illicit market. A bulletin released by the AGCO provided some key requirements and guidelines on how retailers must execute the newly approved activities. Some notable requirements included:
- Sales and/or deliveries can only be completed by the licence holder or direct employees of the store who hold a CannSell certification. Third-party delivery services are not permitted.
- Products must be ordered and paid for online. Payment must be completed online at the time of order. Payment cannot be completed at the store when selecting curbside pickup.
- Curbside pickup must occur in an outdoor area near the store which can be clearly captured by the store’s video surveillance system. Customers are not allowed to enter the store.
- Stores must comply with social distancing directives to ensure customer safety in lineups.
- Cannabis must be delivered to the purchaser or other person over 19 years of age living at the residential delivery address on the order.
The new activities will be permitted for 14 days, with the potential for extension if the declared provincial emergency mandating business closures continues.
Challenges of Implementing New Procedures
While the new developments are a huge win for the Ontario cannabis retail industry, retailers are scrambling to implement procedures to handle logistical challenges of curbside pickup and home delivery. With the original de-listing of cannabis stores from the essential services list, many store owners were forced to lay off significant portions of staff. Within a matter of days, these employees had to be called back in order to assist with the scramble of rolling out curbside pickup and delivery. While some business owners like Steven Fry, CEO and Co-founder of Sessions Cannabis, were already equipped with the capabilities to fulfill curbside pickup, online sales and deliveries proved to be a new challenge.
“It’s been difficult to allow online payment; that’s a new one. What we didn’t expect is that the government would not allow us to process payment in the store or in front of the store. Right now, it’s been a bit like a call center,” said Fry when asked about how his company is adapting.
Currently at Sessions, customers first place an order online and receive a call from a store representative shortly after to process the order. These temporary procedures are in place as their website is augmented to support online payments.
The government’s decision to not permit third-party delivery services also presented additional considerations for retailers in terms of staffing and operational protocols.
“The notion of not being able to engage third-party delivery companies is quite challenging,” said Mimi Lam, CEO and Co-founder of Superette, highlighting the challenges of asking team members to perform additional duties along their regular ones.
Physical deliveries must be completed by retail store employees who hold CannSell certification. Due to the volume of orders, some retailers will need to hire and train additional delivery staff on short notice, as well as ask existing staff with vehicle access to assist. In addition, asking employees to deliver parcels to customers’ doors and verifying identification presents an added risk of exposure to COVID-19.
Future Sales Trends
Without preliminary sales data, it is difficult to assess the effect that delivery will have on consumer buying habits.
“If it is an economical delivery option [for customers] and they can order anytime they want, they might order more frequently with smaller basket sizes. If delivery fees are high, they might order less frequently with larger basket sizes,” says Lam.
There is a good chance that customers who aren’t able to make the trip to pick up orders from their favourite store, will be happy to have the option of having it delivered to their doors.
“I think from a retail perspective, where it becomes interesting is, previous to this, our interaction [with customers] was purely physical but now we get to create the ecosystem where we can interact with them digitally as well,” added Lam.
It’s true that these changes bring with it new supply models and opportunities for retailers to get their products into customers hands more efficiently. Only time will tell how these trends play out. Curbside pickup is currently available at Sessions Cannabis and Superette and both will be rolling out the delivery option at their stores this week.
Curving the Illicit Market Through Access
The government’s decision to allow curbside pickup and delivery was primarily focused on promoting access to cannabis in an effort to curve the reliance on illicit sources by customers:
“If we’re going to win at this game of stopping the black market, it’s important that we have the same means as they do. They’ve got delivery means, they’ve got mail, etc. For [cannabis retailers] it’s been extremely limited,” said Fry.
By allowing retailers to deliver orders themselves, they can directly compete with the illicit market at the level of the consumer.
“The reality is they are still there; they are still around, and they will take advantage of opportunities. We know delivery services across key markets in Ontario are still operating through illicit channels and these are unregulated. There’s no way to combat them other than to give customers an alternative,” said Lam.
Overall, the introduction of these new policies is not only a win for the cannabis industry but for the provincial government as well, which is supported by the federal government’s cannabis regulatory history of enhancing public access to legal cannabis to ensure the safety of Canadians and minimize illicit activities. Should the future data indicate that the introduction of delivery services results in a significant decrease in the illicit market share, it could set the stage for allowing retailers to continue these practices after the pandemic is over. During a recent online webinar hosted by Business of Cannabis, Cheri Mara, Chief Commercial Officer at the OCS, stated that while she is unsure if private retailers will be able to continue serving customers online after the pandemic is over, she would endorse that decision, highlighting the OCS’s mandate is to provide a legal framework, and to make sure Ontarians have access to legal cannabis and to drive the legacy market out of the space.
“My hope is that they will continue to allow us to do this beyond these COVID-19 measures. I think it’s an amazing opportunity for retailers across the province. I certainly give the government applause in terms of allowing us to do this and hopefully continuing to allow us to do this in the future,” said Fry.
It is clear that coming together as an industry and voicing concerns to our political leaders as they arise has its merits and can yield favourable results. In a time where the future of the economy is unclear, it is in our governments best interests to provide all business owners, including legal cannabis business owners, with the tools they need to weather the storm and to ensure our current progress is not impeded. At the same time, we have never before seen an opportunity where the government is paying as close attention to the cannabis industry and responding in such short time frames. It’s a time of great change and we are all adapting.
CannDelta is Here to Help
Any cannabis producer or retailer affected by COVID-19 should reach out to CannDelta for a free consultation on how best to navigate the ensuing months. CannDelta is a Toronto-based regulatory cannabis consulting company that can be reached at info@canndeltav2:8890 or toll free at 1 (877) 274-6777.