The number of pot stores in Alberta reaches a potentially unsustainable high

Craig Kolochuk is blunt in his assessment of Alberta's retail cannabis scene: there are too many stores, competition is fierce, price wars have broken out and dozens of locations are at risk of closing.

"Unfortunately, right now, there's blood in the streets," he said.

Kolochuk is the CEO and founder of 13th Floor Cannabis, a small independent cannabis retailer with two locations in Calgary and one in nearby Airdrie.

He predicts about a third of the existing retail outlets could close over the next one to two years.

"We're just carving up the pie too much and the market's not there," he said.

"It's going to be ... who can persevere and who has a strong balance sheet and some supportive shareholders."

According to the latest information from Alberta Gaming, Liquor & Cannabis (AGLC), there are 761 licenced cannabis providers in the province, with 194 of those located in Calgary. 

"I think 30-40 per cent of locations will be shut down in the next 12 to 24 months," said Kolochuk.

'Oversaturation' of retail market

An analysis of the Canadian retail cannabis market, done earlier this year by data firm Cannabis Benchmarks, concluded that Alberta has too many retail outlets based on comparable data from Colorado and Oregon, two U.S. states that legalized the sale of cannabis in 2012 and 2016 respectively.

Het Shah, who compiled the data, says Colorado has one recreational retailer for every 9,600 residents, while in Oregon there is one store for every 6,150 people.

Alberta has roughly one retail outlet for every 5,911 people. By comparison, the national number is pegged at one store for every 12,184, according to Shah's research. He says there is room for expansion across the country, just not in Alberta.

"On average, we found that Alberta had roughly 27 per cent more stores than required to serve the population," he said.

Shah says one store should ideally serve 7,500 people, suggesting there is room to add more than 5,000 stores across the country — outside of Alberta.

The AGLC, the government agency that regulates retail cannabis licensing, continues to approve new licence applications. The number of retail shops has increased by 85 over the past year, an average of seven new stores opening every month.

Shah predicts the number of stores in Alberta will actually decline over the next two years "as competition intensifies and store economics become less favourable," he said.

"There's a large number of stores that are suffering."

While the number of new licences is increasing, some stores are also closing. 

"We're also starting to see a lot of contraction in the market," Marcie Kiziak, CEO of Edmonton-based Nova Cannabis, said during a conference call with analysts and investors last month.

"There is an oversaturation of licences throughout the province," she said.

The company, which operates 82 retail outlets in Alberta, Ontario and Saskatchewan, reported record sales in its most recent quarterly update as it opened 29 new stores in the past year and rebranded outlets to Value Buds.

'Hyper-competitive' market in Alberta

Consolidation continues to be a theme within the cannabis retail market. Larger firms have been taking out smaller, independent shops while also opening new locations.

High Tide Inc., which operates 29 stores in Calgary and 75 in Alberta under the store banner Canna Cabana, says expansion is a major part of its strategy. Unlike B.C., there are no limits on the number of licences one company can hold in Alberta. 

"Alberta is a hyper-competitive market for cannabis retail right now," said Omar Khan, the company's senior vice president for corporate and public affairs. 

"I won't argue with the notion that perhaps there are too many licences in the province right now," he said from the company's headquarters in northeast Calgary.

Without revealing precise locations, Khan said the company is looking to open up new stores, or perhaps takeover existing ones, in areas that High Tide considers underserved.

"There are pockets in the province that can handle additional cannabis stores and, in terms of our organic growth strategy and our acquisition strategy in the province, that's really where we're looking at," he said.

Khan is hoping the AGLC can ease existing restrictions on retailers that could help them compete against the illicit cannabis market, which he estimates makes up 40 per cent of cannabis sales.

Price wars

As the number of retail outlets in Calgary closes in on 200, Kolochuk says competition for customers is fierce.

"It seems like it's a race to the bottom, it's a price war, margins have been compressed," he said.

Canna Cabana storefronts advertise a lowest-price guarantee. Other retailers also offer loyalty programs and other rewards. 

Nick LaMonaca, who purchased a few joints at a Canna Cabana store in northwest Calgary, says he's noticed how prices have come down and retail outlets have proliferated.

"It's popping up like gas stations. You see one here, you see one there," he said.

"They've been doing like promotions, they did this scratch card lottery thing, I didn't even get one because they gave them away so quick." 

A report from Deloitte Canada and cannabis research firms Hifyre and BDSA found the average price for cannabis dropped to $7.50 per gram last year from $11.78 per gram in 2019 after legalization.

Kolochuk says it can be difficult to compete against the larger retail chains and the buying power they have with licenced producers, but he says his company is focused on delivering high-quality products along with consumer education.

That same Deloitte report suggested consumers are willing to pay more for a superior product.

It's a strategy Kolochuk hopes will help him through the highs and lows of the retail landscape — and that includes possibly opening a few more stores or acquiring existing ones.

"I think we can turn this to our advantage and potentially take out other independents that are struggling, and potentially rebrand these stores. And, you know, really push our brand," he said.

Bryan Labby is an enterprise reporter with CBC Calgary. If you have a good story idea or tip, you can reach him at bryan.labby@cbc.ca or on Twitter at @CBCBryan.