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Lessons after Two Years of Legalization

On October 17, 2018, Canada became the first G7 nation to legalize recreational cannabis.

The federal government put the Cannabis Act in place “to keep cannabis out of the hands of youth, to keep profits out of the pockets of criminals, and to protect public health and safety by allowing adults access to legal cannabis.”

The new legal status of cannabis in Canada presented retailers with a tremendous opportunity to become first movers in a space that was newly regulated. But setting up a legal cannabis retail business was not without its challenges.

“The cannabis industry has definitely overcome numerous challenges and evolved in the past two years, and Merrco has grown along with it,” said Fern Glowinsky, President and CEO of Merrco. “Now more than ever, during the COVID-19 pandemic, all businesses are seeking ways to offer safe supply and payment options to help protect consumers and support industry growth. Merrco has curated a unique, highly valuable ecosystem of technology partners to offer omnichannel payment solutions to the cannabis sector. We will continue investing in our payment platform and working closely with our partners as we navigate this next chapter of the industry together.”

The Cannabis Industry’s Growing Pains

When the clock struck midnight on October 17, 2018, provinces with retail stores saw huge customer line-ups, with those hoping to be among the first to buy legal recreational cannabis. Government offices also had long, virtual line-ups of businesses applying for retail licences to sell legal cannabis. At the same time, licenced producers were navigating compliance requirements touching all aspects of the supply chain. The demand soon led to chronic supply shortages, frustrating customers and retailers alike.

Another challenge for retailers was compliance. Fulfilling the requirements of inventory management, point of sale management systems, and payment processing as well as a compliant store flow was necessary to operating a legal cannabis retail business. Not only did retailers need to have all the vital technology systems in their stores, but all the components had to be integrated to ensure an accurate view of what’s happening across their business.

Anne Forkutza, the VP of Strategic Partnerships for Cova said, “Despite the bumps in the road with licencing and rollout strategy in cannabis retail, it’s still incredible to be living in a country where cannabis is federally legal. It’s a privilege to even be in a situation where we can debate about all the ways our country got it wrong or right.”

What We Learned from the Pandemic

In March of 2020, the optimistic outlook for cannabis sales ran into the coronavirus pandemic, which brought the country and the world to a screeching halt.

Cannabis retail stores, among other essential businesses, were allowed to remain open and had to quickly adopt social-distancing, reduced customer footprints and other in-store protective measures. In some provinces, brick-and-mortar stores were allowed to accept click-and-collect orders online with curbside pickup and home delivery.

With the new available options of customer interaction and sales channels, legal cannabis retailers discovered the power of reaching customers through their preferred access points, whether it’s shopping in stores or online; and providing convenient delivery or curbside pickup options.

Commenting on the evolving cannabis industry, Ross Lipson Cofounder and CEO of Dutchie said, “The cannabis space is extremely fast moving, and can change on a dime. It’s important to be agile and adapt to the space as it changes. The game is long and we are only in the first inning. We have to make sure that we provide long term value to customers that will stand the test of time!”

The “Future of Cannabis in Canada Report,” produced by Valens and Resonance Consultancy, studied the most important factors driving the overall cannabis purchase experience and found that: “Having a convenient/easy shopping experience is clearly the #1 driver (31%), followed by having enough product available (17%).”

A large part of making the process more convenient for consumers is to allow them to make their purchases easily, using their preferred payment method and form factor.

Merchants went from traditional chip-and-PIN payment terminal transactions in the store to card-not-present transactions online, and implemented digital menu and online ordering to offer customers a convenient shopping experience with curbside pickup and delivery (where provincial laws allow). Customers can now use a website or an app to see what inventory is available at different cannabis retailers, place an order, and then go pick it up or have it delivered.

Despite the pandemic, cannabis sales have not suffered as they have in other business sectors, buoyed by the innovative ways that government and cannabis businesses responded to the situation. Alberta, for example, saw an increase in cannabis sales since the pandemic began. While Ontario, with its much larger population, recorded higher sales in the first four months of 2020, Alberta recorded the highest sales in the country, in April and May of 2020.

Commenting on the industry growth, Albert Kim, CEO Greenline POS said, “While Greenline POS has seen incredible growth in both the industry and our business in the past two years, I truly feel that we’re just getting started. Most provinces outside of Alberta have very low cannabis retail store densities, and business relationships could be taken to the next level with potential direct-to-retailer sales in places like BC. Consumers are continuously warming up to legal products after two years of transitioning off the gray market, and that shows in the cannabis retail sales numbers from Statistics Canada.”

The Future Looks Bright

The cannabis business sector seems to have come out stronger after facing huge challenges. Some estimates from an Arcview Market Research report on the cannabis market in North America, predict that the total Canadian cannabis market, including medical and recreational cannabis products, will generate up to $7 billion in sales by the end of 2020, with $2 to $4 billion in the legal recreational market alone.

“It’s still early-days for cannabis, and there’s plenty of opportunity for the right products and teams to become industry main-stays. Existing operators should do their best to give innovators a chance to enter the space and make a positive impact,” said Ryan Lalonde CEO and founder of Buddi.

Photo courtesy of Spiritleaf St. Albert