Shakeout is Imminent for Ontario's Dense Pot Market

Stephen Andrews
04 Nov 2021

One of the shortfalls at the beginning of legalization in Canada was too few shops around the country's provinces and a market hungry for weed. Fast forward to 2021, everything's changed. Gone are the day of the post-prohibition legal market crisis. Pot shops are mushrooming left, right, and center, and merchants in cities like Ottawa may soon begin to feel the real effects of stiff competition.

According to figures published from Ontario Cannabis Store (OCS), the Crown corporation that manages wholesale distribution to all brick-and-mortar pot retailers in the province of Ontario, sales for the first quarter of 2021 in the capital Ottawa capped at about $13 million. That was when the city had 28 open and running stores selling cannabis goods and products. Since then, the number of shops has manifolded, but there are no indications whatsoever that sales have proportionally grown. It's more shops for roughly a similar expenditure as before. 

Provincewide, Ontario had 527 pot shops across 122 regions by March, OCS reports reveal. But over the next three months, the number of shops rocketed by 46%. Retail cannabis sales on the other hand went up 18% for the same period. 

By the end of the summer, Toronto cannabis retailer 6 of Spade became the 1000th store in the province.

The intense clustering of shops in cities such as Ottawa has been prompting the question of whether all vendors will be able to survive, given that, essentially, everyone is selling the same type of produce.

According to the Alcohol and Gaming Commission of Ontario (AGCO), the agency that oversees the retail of cannabis in the province, 42 stores are now open or "authorized to open" in Ottawa, while 10 more are "in progress," and the public notice period has ended for another 22. 

The numbers point to a dramatic increase from the solely three dispensaries that opened in Ottawa in the spring of 2019 when the province first loosened licensing for private-owned businesses. With virtually no competition and huge demand, for those early-bird shops the daily sales of cannabis would sometimes soar to $30,000, according to more reports. However, the milk and honey era was short-lived as more vendors kept on coming. Industry insiders now nod to the prospects that a major correction is on the way.

"Unfortunately, this rapid growth will likely result in some retailers being faced with increased competition and a crowded marketplace, which could result in some closures and market right-sizing," according to David Lobo, the interim president and CEO of OCS.

"At the core, all retailers will be challenged to further drive a relentless focus on targeted consumer segments and differentiating themselves from others," Lobe said in an annual market report released in the summer.

"There's going to be some consolidation of brands where we're going to ultimately see some of the larger chains grow and gobble up some of the smaller stores in desirable locations, and then there will be some that will just outright fail," predicts Tina Fraser from Brazeau Seller Law, who's also following the development. 

So, another take from Canada's legal policies? Adding too many shops in too little space over a too short period of time, is not looking good. 

Stephen Andrews