MedMen, Venice, CA – Photo: RetailWIre
Will the ‘c’ in c-stores soon stand for cannabis?
Convenience stores have been selling beer, tobacco and related accessories for years, so it probably isn’t a major surprise that, with marijuana being legalized for recreational use in many places, these merchants are seeking to cash in on a market worth billions of dollars.
The clearest example is the announcement that Alimentation Touche-Card, the largest operator of convenience stores in Canada with nearly 7,800 stores in the U.S., has formed a strategic partnership with Canopy Growth, a Canadian cannabis and hemp producer, to open its very first location selling cannabis and related products. Currently, only government operated facilities may sell cannabis in Canada, but that is about to change on April 1 when private concerns may apply to dispense marijuana and related products.
The store, owned and operated by Alimentation Touche-Card under trademark license as part of Canopy’s Tweed brand, will open in London, Ontario in April. The store will sell a variety of products such as dried flower products, oils, softgels and cannabis accessories.
The partnership between the two companies was formed based on Canopy’s expertise in cannabis and Alimentation Couche-Tard’s experience selling age-restricted products to consumers and operating physical retail locations. The two companies see the deal as the start of a partnership that has potential well beyond the borders of Canada.
Brian Hannasch, president and CEO of Alimentation Couche-Tard, said his company was “excited about taking a leadership role in the development of cannabis retailing excellence in this major Canadian market. We believe the Ontario Cannabis Store and private retailers will co-exist under a tightly regulated framework with common goals to protect public health and safety.”
Mark Zekulin, president and co-CEO of Canopy Growth, said his company’s brand “is synonymous with having informed staff who can help consumers find the right option for them, whether they are a new or an experienced consumer.”
Canopy Growth currently operates Tweed stores in the Canadian provinces of Saskatchewan, Manitoba, Newfoundland and Labrador.
Discussion Questions
DISCUSSION QUESTIONS: How quickly do you expect retailers to get into the sale of cannabis and related products, once allowed to do so by law? Do you see convenience stores or some other retail channel as a logical distributor of legal cannabis and related products?
Poll
BrainTrust
Cathy Hotka
Principal, Cathy Hotka & Associates
Ben Ball
Senior Vice President, Dechert-Hampe (retired)
Cannabis retailing is expanding quickly, but it’s being held back by lack of supply – there’s simply not enough product to fulfill demand. It’s extraordinary to watch the cannabis retailing industry evolve in Canada. There are plenty of innovative retail concepts and approaches being tested. I have no doubt that at some point in the future, convenience stores may also be included in the mix, and so companies like Alimentation Touche-Card are jockeying for position. That said, the industry is still very tightly controlled/regulated by the government and with the ongoing supply issues, I believe it will be years before you find cannabis widely distributed through convenience stores.
As someone who has lived through the legalization in my own state, I can say there are still many many hurdles to overcome before you can pick up THC sodas next to the beer. Heck, we only just now made it legal to sell beer in grocery or c-stores (beyond individual mom and pop shops). The banking problem in the U.S. has to be solved before any major corporation is going to touch it. But every major player is sitting on the sidelines like a sprinter waiting for the gun to go off. I’m just pretty sure it’s going to take a couple more years – at least – before we get there.
The quick answer is that nearly everyone will want to sell cannabis, but c-stores are perfectly positioned, for multiple reasons — convenience, safety, and experience selling age-restricted products. It should be interesting to see how they position munchies-related products like Twinkies and chili dogs, too.
It’s likely that where cannabis is legal, it will take a few years to evolve into a model that works in a traditional retail setting. When that does happen, selling cannabis products really won’t be that different than liquor sales, save for limits and some additional control measures. Where there’s a product to fill a market need, there’s always a means to make it happen. C-stores/retailers will find the way.
This entire category of products remains largely misunderstood. Furthermore, the reliability of the supply chain (and sourcing) is undoubtedly going to come under scrutiny.
However, with that said, c-stores can be early winners across the category – especially as it relates to consumables. I also feel that drugstores (perhaps specifically independent pharmacy) could gain share with health-related product categories.
Although it appears to be the wild, wild West at the moment, once more precise product definition and regulations take hold, CBD and other cannabis-originated formulations will remain among the fastest-growing product groups.
C-stores format, locations and experience selling other regulated substances make them a perfect match for a good portion of target customers. However, there is another type of cannabis buyer who want a different type (leisurely and educational) of experience, so I expect other retailers to enter the market as well.
The short answer is as quickly as the law allows. C-store retailers have been selling age-restricted products since their inception and are very familiar with the process to ensure they don’t violate the statues governing their sale. The real question is, will they be allowed to do so inside of their existing facilities? This is very unlikely, but more likely from a separate facility or an age-limited portion of their existing stores.
I was on the same wavelength as Cathy — the entire category of munchies will explode. Late nights, alcohol, pot, snack food — what could possibly go wrong?
There’s little doubt c-stores will go after the cannabis market. The more interesting riddle to unfold may be, will drug chains? Will Walgreens go based on their stance on tobacco? Will CVS see cannabis more like beer (an OK vice we carry) or tobacco (a not OK vice we don’t carry)?
Will Aetna wellness counselors in CVS stores recommend Medical cannabis products in legal states? Very interesting debates going on in the boardrooms, I’m guessing!
I don’t expect many standard retailers in the U.S. will start selling cannabis any time soon; CBD maybe, but not cannabis. While there has been a lot of deregulation and legalization, there are still a lot of laws that dictate where cannabis can and cannot be sold. Some states also limit the number of outlets they license. This means it is not an easy market to get into from a distribution perspective.
I think that for most retailers contemplating selling cannabis, when it is time, there will be a line. As Georganne and I travel, we shop these stores. I always inquire of what their biggest challenge is, and the answer is almost always the same: what to do with all the cash. Prohibited to utilize most banks and credit cards is a serious problem and most frequently the answer. I think that kind of business points out what non-cannabis retailers see, and anxiously await. There still will be many regulations to come, but I think the wait line will be long. At a cannabis convention in Las Vegas, I had the opportunity of speaking with some of the biggest promoters to the industry, and I must say they were brilliant retail minds. These people are serious.
Once legal, sales of cannabis edibles are poised to skyrocket. That’s because eating and drinking cannabis is cleaner, more discreet and more socially acceptable than smoking or vaping cannabis.
Grocery and pharmacy retail stores make strategic sense for distribution, as demand for products containing cannabis and CBD has increased across the food, beverage, beauty and healthcare categories.
As long as grocery, pharmacy and convenience stores can protect minors from accessing cannabis, it makes sense to for them to sell cannabis products as an alternative to cigarettes and alcohol because studies prove these legal substances have comparatively higher health and societal costs.
Until more states legalize recreational cannabis and it is approved by the federal government, we won’t likely see cannabis available in c-store or any major retail chain. Cannabis is still illegal under federal law and is treated like every other controlled substance, such as cocaine and heroin. If or when cannabis is fully legal, it is a prime category for large chains to penetrate. The other major issues that need to change, and probably will change when it is fully legal, are banking restrictions and the difficulty in leasing space.
Today, the cannabis industry is primarily independent, sole proprietors that are not sophisticated retailers. Larger retail chains could offer economies of scale and dramatically improve the customer experience.
Rather remarkable, isn’t it? Here on RW we frequently talk about all kinds of plans for automated c-stores, and yet here is a perfect example of why such is, if not impossible, than at least difficult.
But back to the question: given that supporters have pledged that cannabis WON’T be treated in the way that alcohol and tobacco have been — which they frequently describe as a mistake — and opponents don’t want it sold anywhere, I don’t see it happening — in my lifetime, at least.
It will take a while, but at some point cannabis will be sold through multiple channels just like alcohol is. The consumer will drive this as far a regulation will allow. You will have high-end experiences, perhaps some category killers and those that sell a convenience assortment. Companies throughout the value chain are watching this space ready to take action when their own risk/reward triggers are met. I have heard firsthand that some logistics companies are not willing to take the risk yet. Meanwhile, some like ACT (Circle K in most places) are leading the charge in c-stores. Green Growth Brands playing the specialty angle.
The cannabis industry needs some basic ground rules, like tobacco and alcohol. The range of forms recreational pot now comes in is dangerous for children and teens, much less the rest of us. The c-store may distribute the medicinal forms — but recreational cannabis will need more careful control.
Retailers are already gearing up for the opportunity to sell a new and desirable product, as in cannabis and related products. It’s not how quickly the retailers will get into selling this, it’s how fast it will become legal to sell it.
In answer to the first question, retailers have already gotten into the sale of cannabis once allowed to do so by law. In states where medical or recreational cannabis has been legalized, specialized shops have sprung up with vigor to serve customers of all walks of life. These establishments offset the costs of cash-handling with high margin, luxury-priced products.
Inhibitions by both retailers and manufacturers means c-stores will take longer to get in the act. First, c-stores need to staff up compliance departments in their procurement and field networks to manage the different laws and regulations set by states, Congress and executive branches like FinCEN, DEA and FDA. The difference between .1% and 1% THC levels in CBD is profound. For this reason, pharmacies will engage first. C-stores will eventually take the plunge because they will assume they have the advantage of managing alcohol and tobacco rules, where the complexity is lower.
Manufacturers used to premium pricing will resist price concessions needed to get slotted in the high velocity channels. Eventually they will capitulate, justifying their decision by the need to go mass market before their competitors do. Over time the market will have a handful of high end producers, some sold only in premium channels, and a bevy of me-toos at the low end. The titans of the industry like Canopy will have a full portfolio.
Of course, the above may happen slowly or not at all. Canada is way ahead globally, so the US (moving ahead) and Europe (dragging its feet) can watch the experiment play out.
I have a somewhat different prediction from many in this group. I expect retailers will be quite slow to adopt cannabis and related products for some time, for three reasons.
First, regulations in each state are evolving and while that continues, cannabis will not earn sufficient margins for retailers to make it worthwhile to continuously adapt to changing rules.
Next, there are and will be issues with how to conduct banking activities. Banks are managed by the federal government and cannabis is still illegal at the federal level.
Finally, in a strange twist, the illegal supply for cannabis is much better developed than the legal one. That, combined with the fact that taxes on cannabis sales can make legal cannabis twice as expensive as illegal cannabis, means that it is very easy for people to purchase cannabis on the street corner as they did when it was illegal for much less than through legal channels.