With dozens of pot shops popping up across northern Ontario, legal weed market could be at 'saturation point'

The typical northern Ontario town has a post office, a grocery store, beer store, hardware store and now a pot shop.  

The Pop's Cannabis store in the Hanmer area of Greater Sudbury is sandwiched between a bank and a pharmacy. 

Store manager Jamy McKenzie said some customers are just noticing the store now, because they haven't been "shouting from the mountain tops." 

"We don't want to disrupt the community. We want to be a part of it. We want to contribute to it," he said. 

Cannabis stores have become a big part of northern communities with 88 dispensaries now licensed in the region, including 24 in Greater Sudbury, 17 in North Bay, 11 in Sault Ste. Marie, ten in Timmins and at least one or two in most fair-sized towns.

Legalization got off to a slow start in Ontario, with the Liberal plan for a chain of LCBO-like dispensaries suddenly scrapped when the Progressive Conservatives came to power.

After a lottery system to decide the first few licenses, with a set number allowed in each region, the province opened up the market in December 2019 and now the regulations for opening a cannabis store are similar to getting a liquor license for a bar or restaurant.

"The province sort of opened up in a trickle and now it's a full on flood," said Jay Rosenthal, managing director of a trade publication called The Business of Cannabis. 

He said those floodgates opened right before the pandemic, so many were caught off guard to see all these pot shops popping up in their neighbourhood. 

Sales in northern Ontario jumped from 1.7 million grams at $15 million in 2020 to 10.7 million grams for $87 million last year. 

"Arguably we're probably past the saturation point," said Eugene Konarev, brand creator of Highlife, whose store in Sudbury was the first licensed cannabis retailer in northern Ontario. 

Highlife now has a store in Sault Ste. Marie and plans for locations in Hanmer and Lively as well, but Konarev says sales are "somewhat flat" with all the new competitors.

He said he can tell that cannabis stores "entered the mainstream" over the last three years whenever he talks to landlords about renting space. 

"They were extremely hesitant before, they're probably also as hesitant and scared today, but for different reasons," said Konarev. 

He said while landlords saw cannabis as a "questionable" tenant three years ago, often charging higher rents, today they're more concerned with a store having a strong business plan to be able to survive in such a crowded marketplace.

"As difficult as it is to turn a profit in this saturated market, if your rent is three times that of your neighbour, you probably won't survive for long," he said. 

Robert Carroll is CEO of Due North Cannabis with two locations in Sault Ste. Marie and plans for a third.

His father once sold grow lights to medicinal producers and he wrote a paper in business school about the cannabis industry, so has been wanting to work in this field for years, but doesn't think that's the case with all the pot-preneurs. 

"Kind of thought it would be a get rich quick sort of deal, but margins are not huge," said Carroll. 

"Just opening a store on almost any corner and being able to attract customers, I think those days are kind of behind us."

Pop's Cannabis opened its first store in Sturgeon Falls last year and now has a dozen locations, including in Kirkland Lake and Kapuskasing.

President Ryan Dymond said he hopes all the new cannabis stores can survive in the long run but "logistically it's just not likely."

"Strategy shifts a little bit," he said. 

"We were a little aggressive out of the gate... we opened 12 locations in seven months and now I'm just slowing that rollout."

Luc Dinnissen said he and his wife have been "avid cannabis fans or connoisseurs or users for a long time" and had a "pipe dream" of one day having a legal pot shop.

The couple opened Off the Stem in March next to the convenience store they also own in Kapuskasing.

He said small towns are "usually a little bit behind" the bigger centres when it comes to new things, but a second cannabis store opened a few months after them.

"It's kind of hard to gauge if we've reached the top of the market in our area. It might be possible for us both to survive here," Dinnissen said. 

"Time will tell."

Some industry analysts said that a good ratio is one cannabis store per 7,500 people, others put it closer to 50,000 people for one dispensary.

Rosenthal said the big question for future growth is how many people are still buying from the black market and how to move them over to legal weed, with some pegging it at 30 per cent and others saying that close to half of the potential customers are still buying from illicit sellers, what the industry now calls "the legacy market."

"We will start to see what the right number and mix of stores is for every community," he said. 

"If we had a 100 per cent increase in coffee shops next year, not all of them would stay open."