A Free Resource for Those Looking to Enter the Cannabis Retail Space in Ontario and the Rest of Canada
ABOUT THIS SERIES
CannDelta, in partnership with the Business of Cannabis, has released a 10-article series entitled “So, you want to open a cannabis retail store?” aimed at preparing prospective cannabis retailers with the tools and resources needed to open their cannabis retail store. This series covers everything from initial planning, estimated start-up costs, the licensing process, location selection, staff hiring, inventory management, and much more. The goal of the series is to empower prospective cannabis retailers with the knowledge and resources needed to change their mindset from “one day” to “day one.”
Throughout this series, you will hear from leading voices in the industry, including current and prospective retailers, along with a multitude of ancillary service providers such as realtors, interior designers, security integrators, financial institutions, insurance brokers, and lawyers. This will be your one-stop guide to getting started.
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A HISTORY LESSON
The Canadian federal legalization of cannabis in the Fall of 2018 had many cannabis enthusiasts dreaming of opening up a legal dispensary, seeing it as a golden opportunity to start a lucrative business in an exciting new industry. Initial projections for the national cannabis market (medical and recreational) were as high as $4.3 billion dollars for the first year alone (2019). In Ontario, it seemed any citizen who could scrounge together some money was submitting an application into the initial cannabis retail lottery system and waiting hopefully for their golden ticket to arrive.
And then, for most, reality sunk in.
The formidable monetary expectations and requirements for early prospective cannabis retailers turned many hopefuls away. How many people could actually provide a $50,000 letter of credit within seven days? Those first-era lottery winners in Ontario who were equipped to march forward had to endure many challenges on their way towards opening up a cannabis retail store. From unfair lease agreements to funding challenges to lack of community support and breaking and entering, they faced it all.
While new-era prospective retailers have their own set of challenges to overcome en route to becoming a licensed retailer (more on those later), we can, fortunately, learn from the experience of established retailers as a guide on how to get the ball rolling. In this article, we will teach you where to begin and what to expect when pursuing a cannabis retail licence.
Whether you are a successful businessperson, a former legacy market operator, or someone with minimal relevant skills or experience, the first step is the same: do your research and make a plan. Like any worthwhile mission, it is imperative to be prepared before diving in headfirst, throwing around hard-earned cash without a clear goal in mind. There are many ways for you to begin the learning process, including understanding the licensing requirements, networking, talking with people who have done what you are trying to do, reading blogs and articles, tuning in to webinars, engaging in chat forums, and consulting with professionals (e.g., consultants, lawyers).
Some key questions and considerations for you to ask and research early on include:
- Why do I want to open a cannabis retail store in the first place?
- What is the licensing process to open a cannabis retail store in my province?
- What professionals and experts will I need to hire to help me?
- How much funding do I have currently, and how much will I need?
- Who will I partner with? Do I even need a partner?
- What type of company structure will I have (e.g., sole proprietor or corporation)?
- How do I register a company?
- Where should I open my store? Does that municipality permit cannabis retailers?
- What is a reasonable timeline for making this happen?
Doing your homework to answer these questions will give you a great start in understanding all that goes into opening a successful cannabis retail store. You’ll notice that questions like “What will I name my store?”, “How many employees will I need?”, “How much money will I make?” were not listed. While important, these questions are best left for when you have answered the fundamental questions that are most critical for getting your licence application submitted as soon as possible.
SHOW ME THE MONEY
Securing enough capital to open a cannabis retail store can be a significant challenge, and can determining how much start-up capital you may need. As part of your licensing application, you must demonstrate that you have access to sufficient funds to open a retail store, including for the initial inventory purchase (more on that later). Governing bodies such as the Alcohol and Gaming Commission of Ontario (AGCO) offer little guidance on what they expect for proof of funding, but conservative estimates are in the range of $100,000 to $250,000 (CAD). This is one great reason to consider partnering up so you can dilute your individual financial obligations. Proof of funding can come in a variety of forms, including personal savings, securities held against owned real estate, investors (personal connections and private), and any other assets which can be easily liquidated such as stocks and bonds.
So how much will you need? This largely depends on:
- Your store size: bigger spaces come with higher lease payments, overhead, inventory, and staffing requirements.
- Your store location: being in a crowded marketplace will increase marketing and advertising costs and could compromise your margins by forcing you into fierce price competition with neighbouring retailers.
- Your product distribution: your choice of product offering (e.g. premium versus economy flower) will have a substantial impact on your initial and ongoing inventory costs. Plan accordingly.
- Your store environment: designing a modern, appealing, and inviting retail store that provides a great customer experience is always the goal but can be expensive to achieve.
- Your supporters: hiring professionals such as consultants, lawyers, interior designers, and architects is important for getting your business up and running but can be costly.
START-UP AND ONGOING COSTS
We have scoured the internet, spoken with trusted professionals, and interviewed numerous current cannabis retailers, in an attempt to provide the most accurate and up-to-date start-up cost information as possible. Featured below is a summary of the major start-up and ongoing costs for opening and operating a cannabis retail store: from licensing fees to inventory costs, we have you covered!
Figure 1. Estimated cannabis retail start-up costs ($CAD). 1Ontario.
In Ontario, there are several AGCO mandated fees when you apply for a Retail Operator Licence (ROL), Retail Store Authorization (RSA), and Retail Manager Licence (RML), along with renewal fees:
- ROL | $6,000 for 2-year term | $4,000 renewal fee for new 2-year term
- RSA | $4,000 for 2-year term | $3,500 renewal fee for new 2-year term
- RML | $750 for 2-year term | $500 renewal fee for new 2-year term
These fees are non-refundable, non-taxed, and must be paid in order to successfully submit your licence or authorization application using the iAGCO online portal.
Should you have any questions on cannabis retail applications across North America, feel free to contact CannDelta at 1-877-274-6777 or firstname.lastname@example.org.