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Nearly five years after recreational cannabis legalization, legal weed shops are as common as corner stores in most major Canadian cities.
In the biggest metropolis, Toronto, more than 400 cannabis retail licenses have been issued across the city’s six boroughs.
In contrast, Canada’s second-biggest city – Montreal – is home to only 21 legal cannabis outlets within city limits, plus some stores in outlying suburbs.
All are operated by Quebec’s government-owned recreational cannabis retail monopoly Société québécoise du cannabis (SQDC).
Despite having only 98 stores across all of Quebec, the SQDC monopoly appears to have limited plans to open new outlets over the next several years.
Because Canada’s maturing cannabis market has shown a clear link between growing store numbers and increasing legal marijuana sales, Quebec’s restricted retail expansion plans raise questions about how much further the regulated industry can grow sales in Canada’s second-most-populated province.
SQDC’s latest annual report revealed that sales plateaued at 601.9 million Canadian dollars ($449 million) in the retailer’s latest fiscal year ended March 25, barely increasing over the previous year at a time when overall sales of legal cannabis in Canada were growing.
Other factors – such as labor unrest, a lack of legal vape sales and restrictions on sales of cannabis edibles – also play into Quebec’s flatlining sales.
No matter the cause, it’s clear that Quebec punches well below its weight in terms of legal cannabis sales compared to other Canadian jurisdictions.
In May, Quebec sales of legal recreational marijuana totaled CA$52.5 million for an estimated total population of 8.8 million, outpaced by the smaller provinces of Alberta (CA$74.3 million in sales; 4.7 million people) and British Columbia ($64.8 million in sales; 5.4 million people).
Low store numbers, ongoing labor dispute
Michel Timperio, executive chair of the board of provincial marijuana industry group Association Québécoise de l’Industrie du Cannabis (AQIC), believes the province should have more retailers than the existing 98 and assumes new stores would benefit producers, as sales would presumably increase.
“It’s hard for me to say what would be the ideal number of stores,” Timperio said.
“I believe, though, that if we had more stores, it would be better for accessibility by consumers.”
For now, though, Timperio believes the SQDC has a bigger issue than the number of stores: An ongoing strike by workers at 24 SQDC locations has dragged on for well over a year, resulting in rotating store closures and reduced hours as the stores are staffed by managers.
“That is more of a concern right now than opening more stores,” Timperio said.
SQDC spokesperson Fabrice Giguère noted in a statement that both parties have agreed on “non-monetary issues,” but salaries and the length of the collective agreement are still under negotiation.
“Currently, there is no scheduled date for a negotiation meeting,” Giguère wrote, adding that the SQDC “aims to find a solution to welcome our colleagues back to work.”
A labor dispute with SQDC workers represented by a different union was resolved in 2022.
Meanwhile, the SQDC’s latest strategic plan for 2024 through 2026 makes no mention of plans to open new stores, although it does say the retailer will “continue diversifying our delivery and pick-up services and look into ways of extending our presence across Quebec.”
The retailer told MJBizDaily that it doesn’t have a target for the number of new stores it will open by 2026.
Spokesperson Giguère subsequently added that the SQDC would consider opening new stores in a “few market gaps” over the next three years.
Aside from that possibility, according to Giguère’s statement, the retailer “strongly believe(s) that consumers can have proper access to legal cannabis products with our store network covering the territory of Quebec and the different delivery services, including our 90-minute service.”
In light of recent research showing the link between consumer proximity to legal cannabis stores and the increased odds of those consumers making a purchase from the legal market, Quebec’s relatively small number of brick-and-mortar stores suggests that some would-be legal consumers aren’t being captured by the legal market.
“We don’t know what’s behind their strategy in terms of where they’re going to be going after these 98 (stores),” said the AQIC’s Timperio, who raised the possibility that the SQDC might eventually open different kinds of stores, such as express outlets, in smaller markets.
Canadian cannabis market researcher Michael Armstrong, an associate business professor at Brock University in St. Catharines, Ontario, believes Quebec is “the one province that needs more stores, even for basic public policy objectives.”
“But not necessarily drastically more stores,” Armstrong qualified.
Government retail monopolies such as Quebec’s can have fewer stores than a private-sector market “and still have equivalent coverage (and) convenience,” he observed.
The SQDC’s retail monopoly is highly profitable, reporting net income of CA$94.9 million ($70.3 million) for its fiscal year ended in late March.
Challenges for legal cannabis sales in Quebec
SQDC spokesperson Giguère wrote that the SQDC’s plateauing sales are “in part due to the ongoing labor dispute,” adding that “this stage is completely normal within the growth curve of any new business operating within a new industry.”
Although cannabis market researcher Armstrong believes the strike plays into the SQDC’s sales leveling off, he said, “I’m sure that the plateauing of the store numbers is a big contributor to the plateauing of sales.”
Other factors also account for Quebec’s low cannabis sales relative to other provinces, particularly a political focus on cannabis-related health concerns.
Quebec law prohibits sales of many popular forms of edible cannabis, including candies, chocolates or anything that could be “attractive to persons under 21 years of age.”
Edibles currently for sale at the SQDC include unconventional options such as cannabis-infused beef jerky, baked beets or apricot and reishi mushroom bites.
Also, cannabis concentrates sold by the SQDC may not contain more than 30% THC, leaving room for hashish sales but ruling out sales of more potent extracts such as shatter or wax.
What’s more, the SQDC has chosen not to sell cannabis vape pens and cartridges – a popular product category in the rest of Canada – with spokesperson Giguère citing a 2018 recommendation from Quebec’s public health institute that expressed concern about the safety of vapes.
Giguère said the SQDC is “fully aware and concerned by both the scale and importance of the problem caused by vaping habits among young people” and “will be happy to be part of the solution when the (health institute) decides to change its stance on the matter in the future.”
Home cultivation of recreational cannabis is banned in Quebec, precluding sales of starting materials like cannabis seeds or clones.
Finally, Quebec’s government has forbidden the sale of recreational cannabis to consumers younger than 21, a higher minimum age than in any other province.
Quebec ‘a distinct society’
The AQIC’s Timperio said the SQDC has “done a good job” within the limitations set by Quebec’s government.
“They’re a bit handcuffed in what they can do,” he said.
The SQDC’s ability to take additional cannabis market share away from illicit sellers is limited in light of the fact that the retailer doesn’t sell certain products, Timperio said.
That’s “unfortunate,” he added, “because the main objective of creating legalization was to try to eradicate the black market.”
Timperio said the SQDC deserves credit for paying producers for orders quickly and for having a “well-structured and organized” logistics operation.
“They deliver their mandate very well to the government,” he said.
“But, unfortunately for them, they have a very limited mandate.”
Business professor Armstrong also praised aspects of the SQDC’s business model.
“There’s some things they should do differently, which is more stores,” he said.
“There’s some things they’re doing well, which is pricing, operational efficiency.
“And there’s some things they have no control over, like the minimum legal age. … And they can’t sell any of the edibles that people actually want to buy.”
Armstrong observed that Quebec is, “in many ways, a distinct society” within Canada.
Quebec is historically “more accepting of alcohol, but they also historically are less accepting of cannabis,” he said.
The AQIC’s Timperio said Quebec’s provincial government wasn’t enthusiastic about participating in Canada’s federal cannabis legalization effort and “would have liked, probably, to take more time.”
Timperio added: “Quebec has always been more of a progressive province, which is not the case with cannabis.”
Solomon Israel can be reached at solomon.israel@mjbizdaily.com.
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