Cannabis legalization year 3—welcome to the Hunger Games
For Jenn Larry, the chief commercial officer at Quebec-based MTL Cannabis, watching so many colleagues rise and fall in the tough industry in recent years means she’s feeling extra humbled to be basking in one of the few bright spots.
Success is often the exception, not the rule in the current market. Instead of being discouraged, Larry is driven by equal doses of ambition and uncertainty.
“I use that as a motivating piece every day to say, ‘you’re never going to get it right, push through the fear and just do your best,’” she said on the phone from Montreal.
The small cultivation company headed by brothers Mitch and Rich Clement is celebrating its one-year anniversary in October, the same month as Canada’s third anniversary of adult-use legalization.
“I’d say that that’s kind of the essence of who we are,” she elaborated. “Back in the day, access was illegal. We needed passion then, and we need passion now.”
“So legalization actually is a welcome relief. But I would not be honest if I said that there is a day that goes by where we don’t say, ‘Are we sure?’”
Now available in nine provinces, flower fans have been sure of MTL’s Sage ‘N’ Sour strain. Jars have been moving so quickly that the company is scaling up, recently negotiating a reverse takeover deal with Canada House.
The deal will allow them to expand cultivation space, human power and other resources to produce more strains.
“Everybody only knows us with our kind of signature strain, Sage ‘N’ Sour,” she said. “But we dropped Cookes ‘N’ Crème in Quebec. So we’re going to bring it hopefully to some other provinces in the country as kind of a tasty drop.”
Mergers, layoffs, and oversupply
But MTL’s steady, profitable rise is an outlier, bucking the larger trends that have defined this past year.
While some cultivators are at least growing revenue, if not yet in profit or size, many continued the previous year’s downward trajectory, laying off more workers and shuttering more cultivation facilities.
“The industry is still in its infancy and the dust is still settling,” said Lucas McCann, chief scientific officer at Toronto-based consulting firm CannDelta. Gone are the turf wars characterized by building out massive cultivation facilities in the hopes of producing massive quantities of product.
“And now we’re seeing a bit of an oversupply effect.”
A bit of oversupply might be a bit of an understatement. As of December, Health Canada reported 1.1 billion grams of unsold cannabis. That number has come down since, but there are still hundreds of thousands of grams of unsold flower and edibles sitting in inventory, according to Health Canada.
As prices have dropped, sales have grown through the pandemic. Fuelled by retail growth in populous provinces like Ontario and B.C. and more flexible and customized delivery and online ordering options.
Innovation and new products defined year 3
According to Headset data, sales were dominated by mainstream flower successes like Pink Kush by Pure Sunfarms, pre-roll pinners like Back Forty, value brands like Shred and bulk bags from brands like Homestead Cannabis Supply.
Pre-rolls, in particular, saw a boost this year, with Redees, 7Acres, and Color among the top sellers. Non-flower products were more diverse than ever this year, too. Wana, Bhang, and Spinach were among Canada’s most popular edibles brands this year.
Headset also highlighted new fast-acting options and formats like lozenges, sublingual strips, and full-spectrum edibles making their way to the market.
Vape carts are filled with more sophisticated and flavourful oils than ever, with premium live resin options and carts containing lesser-seen cannabinoids like CBN. There are more concentrates options too, from bubble hash to wax.
The popularity and perils of craft cannabis
It hasn’t been easy for craft producers, many of whom were hesitant to transition from legacy and/or medical cannabis to the new adult-use model, according to the Craft Cannabis Association of BC.
“…the barriers to entry are still extremely high, including high costs across the board, banking and insurance issues, strict regulations, challenges with local municipalities, an undeveloped supply chain. There are real challenges differentiating craft products from others on the market due to the federal marketing restrictions,” wrote director Sarah Campbell in an email.
“The process is long and rather arduous and not for the faint of heart.”
Last month, craft producers launched Stand for Craft, a letter-writing campaign to ask that high excise tax rates be reduced to allow small producers who can’t operate at a loss for very long a fighting chance at long-term success.
Retail store locations exploded, investments soar
More attention and investment was poured into store experiences this year, said Krista Raymer, co-founder of Vetrina Group. As in-store buying opened up post-lockdown, lifestyle-oriented merchandising assets are being tested in stores, largely for the first time.
In Ontario, store numbers increased beyond 1000 this year, shelves filled with products of the same category are gradually being replaced by eye-catching branded focal points, like the old school grocery store elements at Superette stores, like fridges and produce baskets.
“There’s a push back from moving all of our communication from digital platforms with our customers to also include a more tactile, physical experience,” Raymer said in a phone call. “It helps our customers make decisions more confidently, and also know what to anticipate.”
But, she adds, that doesn’t mean technology has lost its value this year. It’s more important than ever but geared more toward building a steady cache of quality, customized recommendations to each shopper in a way that enhances customer experience.
Retail chain Fire & Flower’s Hifyre platform, for example, is designed in part to use a customer’s preferences to make insightful recommendations for future purchasing, rather than asking customers to scroll through product categories on menus in-store or on iPads. Those enrolled in the company’s Spark Perks program are recommended products based on what they’ve bought and liked so far.
“What Hifyre IQ and Spark Perks allowed us to do is really look at how we can recommend products to consumers that we know they’re going to like,” said Matthew Hollingshead, chief innovation officer at Fire & Flower and president of HiFyre.
“And then based on their purchasing behaviour, what they’ve looked at, what they’ve liked, what they’ve reviewed, we can also look at how we can optimize that product offering to them and make sure they’re getting something they’d love versus just picking something.”
Store experiences and product recommendations could be the differentiators which will define the next phase of the cannabis industry, which will likely mean some right-sizing on the retail front, particularly in Ontario.
Social equity campaigns are on the rise
In addition to the excise tax campaign, there’s hope in the next year for more reasonable purchasing limits on cannabis drinks and more investment in educating the public about topics like unregulated products or the health risks associated with cannabis compared to alcohol.
Advocacy group Cannabis Amnesty requested a racial equity assessment that would measure the impact of legalization on racialized communities, and there is hope too that the recent consultation by Health Canada will yield more inclusion of Indigenous entrepreneurs and communities in the regulated cannabis regime.
As for Larry, and the rest of the MTL Cannabis team, they share the dream that the industry will continue to improve. They’re going to bring the same attitude to this year as the last, perfecting one strain at a time before bringing it to each province, one by one.