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Ontario’s Farmgate & Retail Expansion

Southern Ontario’s cannabis growers are keen to roll out a seed-to-sale wine country experience for their customers, and at least 20 Licensed Producers have already applied for a Retail Operator License.

Eight of those permits have already been granted, two farmgate retail stores are already open for business and three more have the necessary authorization to open, according to the Alcohol and Gaming Commission of Ontario (AGCO), but whether farmgate operations ever achieve the laid-back consumption-friendly experience of a visit to a winery or craft brewery is far from assured.

“A farmgate store is no different from a regular retail store,” says AGCO senior communications advisor Raymond Kahnert. “Farmgate stores are regulated by the same standards as other retail stores.”

There are strong signals that consumers, producers, and retailers are keen for more, however.

Tsunami of Retail Expansion

A new report from government-owned retailer and provincial wholesaler, the Ontario Cannabis Store (OCS), notes that in the past year, “growth of craft cannabis producers also successfully emerged in the market, encouraging the rest of the industry to build brands based on fresh products and farm-to-consumer artisanal practices.”

The Year in Review hints at continued innovation in the retail experience.

“In the months ahead, many Ontarians emerging from COVID-19 lockdowns will enter a new legal retail store in their community for the very first time. These shopping experiences and attention to consumer feedback hold the secret to success for the industry for years to come,” it reads.

All of this comes amid a tsunami of retail expansion, according to AGCO. Ontario moved to a private retail model in 2019, “with the goal to further eliminate the illegal market.”

Increasing Access

While that might not mean a cannabis retail store on every corner, if you need one, it won’t be far away. The average distance consumers needed to travel to a retail store dropped from 19 km to just 6.5 km in 2020, a trend that has almost certainly continued through 2021 as retailer outlets continue to proliferate.

As of September 2021, 1,600 applications for Retail Operator Licenses have been received and at least 1,200 issued. Nearly 1,000 of those stores are already open for business, by far the most of any province or territory.

Ontario’s strategy appears to be working. Retail expansion is taking an ever-larger bite out of the illegal market.

In the first quarter of 2020, legal retail sales of recreational cannabis captured just 25% of the total market. By the fourth quarter that share had risen to more than 44%, according to the OCS, using data from Statistics Canada.

That growth came as retailers were forced to rely exclusively on newly launched curbside pick-up and delivery platforms to service their customers, due to the vagaries of the COVID-19 pandemic.

OCS interim president and CEO David Lobo notes, “This was primarily driven by increases in retail points of access, advances in product innovation and quality, and gradual acceptance among consumers around shopping legal.”

“These same important public health measures and stay-at-home orders also tempered demand, minimizing social and tourism activity across our province. Legal retailers did their part to help our province fight this devastating virus, [while] persistent illegal operators continued to fight for the attention of consumers.”

“Notwithstanding these challenges, Ontario’s legal marketplace consistently grew its rate of market capture and percentage of national sales,” he notes.

Maturing Supply Chain

A maturing supply chain and better industry practices are also helping.

“Most rewardingly, legal dried products have started to shed the negative reputation they once garnered as being dry and stale,” Lobo describes.

Growers and retailers have also learned important lessons about their customers.

Consumer preference continues to lean towards products with higher THC levels (above 20%) with customers in stores buying high THC products 344 times faster than low-THC products,” the report reads.

By the Numbers

as of September 30, 2021

Retail Stores Open – 960
Farmgate Stores Open – 2
Cultivation, Processing & Sales Licenses – 27
Micro-cultivators – 13
Micro-processors – 3

Tags: AGCO (55), Cannabis Industry (168), Farmgate cannabis store (4), Ontario Cannabis (58), Ontario Cannabis Retail (20), Ontario Cannabis Store (66)