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Ancillary Revenue Strategies

November 2021 was a critical turning point for cannabis retailers. In British Columbia, the incentive for change began when the Cannabis Retail Store Terms and Conditions Handbook was updated to be in favour of the sales of non-cannabis, consumption-related goods. As a result, ancillary revenue streams have been trending in the last eight months, regardless of cross-provincial regulations differing drastically.

Cannabis ancillary revenue has been known for its restrictions in the past and is still a struggle for many cannabis businesses nationwide. The limitations on indirect consumption-related offerings for retailers extend to niches such as subscriptions (under the Cannabis Act Division 2 Subdivision A Sections 16-24), beverages (including alcohol), food, tobacco, etc. After regulations were changed, many stores seized the opportunity to increase their profits through expanding ancillary revenue offerings.

I had the chance to interview two retailers: Bilal Clouse, Store Manager of Inspired Cannabis Co., and Dennis Schafer, Co-Founder of Stick & Stone Cannabis Co.. Both retail teams are actively working to increase a secondary source of revenue. The focus of this study was the innovations, strategies, and development of non-cannabis product sales from the perspectives of a long-standing rural location and a new addition to a multi-provincial chain.

Inspired Cannabis Co. and Stick & Stone are both family-run businesses and have missions to grow their educational and community presence. In April 2022, Inspired Cannabis opened a new location in Abbotsford, BC, as well as over a dozen other shops in Saskatchewan, British Columbia, and Ontario. The new Inspired Abbotsford location aligns with the chain’s core ideology of “community and family come first.” Stick & Stone operates out of a historic building in Fernie, BC, approximately 50 km from the Alberta border. In the city of Fernie, there are two other retail locations, and all three are privately owned. At Stick & Stone, the close-knit team prides itself on the education and knowledge they bring to their community.

Innovation in Cannabis Ripples into Ancillary Revenue

Both retailers offer a wide selection of cannabis hardware products, including but not limited to papers, grinders, bongs, pipes, vaporizers, and branded clothing. When discussing the profits dedicated to the non-cannabis product categories, both retailers agreed that approximately 3% of their total revenue was ancillary-based. Given that most hardware and accessory margins are 50% upwards to over 100%, it seems like a missed opportunity not to capitalize on expanding consumer demand.

Most hardware and accessory margins are 50% upwards to over 100%.

The two main categories offered at both locations are hardware and branded accessories—the latter being the most favourable for upcoming production across Canada. Many retailers believe non-cannabis product purchases are sporadic. However, the store owners argued that there are patterns within non-cannabis purchasing depending on:

●       Location and customer demographics
●       Staff upsell commitments
●       Non-cannabis product selection
●       Displays and brand loyalty

Take blunts, for example. Will it be that long until consumers are interested in creating that product themselves? Schafer and Clouse agreed that papers were the most sought-after accessory. And, for shops with an expansive paper selection, their customer base tends to be more experienced and comfortable handling cannabis. From this, a creative variation came forth—offering store-branded lighters, matchboxes, and papers with every purchase.

Schafer recalls the development of their branded products, stating, “In the early days, I put a lot of effort into researching and doing the groundwork to understand the cost for us to do our branding in-house. Papers are a great starting point—they’ve always been a top seller, and they’re always in demand.”

Selling branded clothing not only increases revenue, it provides an opportunity to promote your store’s brand. Inspired Cannabis Co. launched their apparel line in early May of 2022. Stick and Stone’s will launch this summer.

Q & A

Q: What strategies have your location(s) created to increase your ancillary revenue given the recent lift on restrictions?

cannabis accessoriesClouse: “That would be growing options any way we can. Anything from bongs, papers, lighters, and classic things from competing retailers, aka head shops. The second is apparel, the ‘swag.’ We had a number of customers requesting to represent us in some way, and it was a result of how we interacted with customers on the sales floor. For example, I love rocking that lighter because it makes me feel like I got a special one that you can only get at Inspired. A people-focused strategy is why high-priced items like dry herb vaporizers and glass products are our top-selling hardware.”

Schafer: “When it comes to swag, in-house creation is good, but ensuring top quality is better. We appreciate handmade and locally made products, even if it means adding a dedicated employee to the task. I put a lot of effort into sourcing and handpicking the accessories.”

Q: What struggles has your store experienced with ancillary revenue?

Clouse: “We are very lucky and fought hard to try and get our position here. The City of Abbotsford only approved four retail locations in the largest geographical city in BC. Honestly, the biggest struggle is that we are a cannabis retail store. And so, when people walk in, that’s what they’re looking for. Some people make decisions before they enter and know what they want. When we’re on the floor, the team is people-focused, and that’s probably been the best way to translate into increased baskets and units per transaction. We have seen very positive results with this approach and can usually tack on ancillary products because of the developed relationship.”

Schafer: “To put it simply, the legality of it all.”

Q: Do you have any advice for other retailers in Canada on how to increase their non-cannabis revenue?

Clouse: There’s no hard strategy or secret. It’s more about making sure that personality comes first. Connect with people. You can always teach information, but personality is something that will always drive sales in retail. That’s something I’ve taken to every management position I’ve had. More people focus on community-oriented activities; people can see that we have fun every time they shop here.”

Schafer: “The story that comes with a product is huge. Also, ethical purchasing forSeed & Stone staff accessories and the bud itself. Customers are gravitating towards knowing where something is sourced and if it was ethically made.”

As retailers look for ways to generate more profits, pressure has grown to increase ancillary revenues. Until recently, ancillary categories have not been prioritized as a viable revenue stream. After speaking with Inspired Cannabis Co. and Stick & Stone it seems evident that perspectives and tactics for ancillary revenue growth are expanding. Retailers’ supply chain must evolve based on consumer behaviour and demands. Widening customers’ product selection is more likely to increase your ancillary revenue, and the expansion of cannabis categories validates this. To ensure customers are comfortable committing to trying new product types, budtenders must establish further connections between themselves and customers, as well as the brands they’re selling.

Tags: ancilllary revenue (1), Bilal Clouse (1), Cannabis Industry (110), Cannabis Regulations (66), Cannabis Retail (252), Dennis Schafer (1), Inspired Cannabis (1), selling cannabis accessories (1), Stick & Stone (1)