Canada’s Green Rush

On Oct. 17, The Cannabis Act enabled Canadians to legally possess, consume, and grow recreational cannabis, creating a multi-billion dollar industry

When Bill C-45, the Cannabis Act, received royal assent in June of 2018, the Canadian government put the wheels in motion for the launch of what is likely to become a multi-billion dollar industry. This historic piece of legislation, which took effect on Oct. 17, enabled Canadians to legally possess, consume, and grow recreational cannabis. The decision by the Liberal government to follow through on a 2015 campaign promise and end more than 95 years of cannabis prohibition was decades in the making. As the years went by, the increasingly progressive attitudes of Canadians towards cannabis helped lift the product from the shadows of the black market into the mainstream. According to Statistics Canada, in 2017 roughly 1.2 million Canadians 18-64 years old consumed cannabis at least once a week, with 667,700 reporting daily consumption.

While advocates pushed for legalization based on the recreational and medical merits of cannabis, it was hard for the government to ignore the economic benefits. In their 2018 study, A society in transition, an industry ready to bloom, Deloitte projected Canadians to spend as much as $7.17 billion on cannabis products in 2019, while increasing their overall consumption by up to 35 per cent following legalization. According to the report, the legal recreational cannabis market, which includes associated accessories, could generate up to $4.34 billion in sales in 2019.

From retailers of water pipes, vaporizers, and other accessories, to purveyors of a wide range of cannabis strain offerings, here, we take a look at three franchise systems that stand to benefit massively from the legalization of cannabis and the rise of Canada’s newest industry.

 

Prohibition

Brian Demers, VP of Operations and Franchise Develop­ment at Quebec-based smoking accessories retailer Pro­hibition, estimates that there are more cannabis users in Canada than research polls let on. And with legalization comes a brand new demographic of clientele.

“Reports indicate that anywhere from 14 to 22 per cent of adults admit to smoking cannabis, and more than 30 per cent would try cannabis once legal, but we believe it will be closer to 60 per cent. It is important to note, this is the percentage of individuals whom felt comfortable confessing their consumption pre-legalization,” he says. “We believe with cannabis being legal, a lot of individu­als, especially professionals, will try cannabis.”

The Prohibition franchise has its roots as a tradi­tional smoke shop. In 1984, Johnny Mennillo, who immi­grated to Canada from Italy with his family when he was 12, set up shop at a Montreal flea market, where he sold a variety of social smoking accessories. From there, word about the quality of his products spread, and his entre­preneurial spirit led to the development of a thriving franchise system with locations across Quebec and in New Brunswick.

Like most smoke shops, Prohibition’s product line has expanded over the years to run the gamut when it comes to accessories; providing products for tobacco, canna­bis, and electronic cigarette users, all under one roof.

“It’s not just related to the cannabis space, but focuses on everybody from e-cigarette users to cigar and hoo­kah smokers,” Demers says of the Prohibition brand. “We really pride ourselves on serving anyone (in the smoking scene.) We’ve designed our stores accordingly as well. We are a high-end boutique with a bright, open, concept and wood-grain coloured stores, to make it inviting to our entire customer base.”

With locations in Montreal and surrounding areas, Quebec City, and Moncton, Prohibition is eyeing expan­sion across Canada. The total investment required for a franchise varies from location to location, based on a number of different factors such as the size of the premises (stores range from 800 to 3,000 square feet). Depending on the size of a location, startup costs range anywhere from $175,000 to $350,000. Franchisees benefit from three weeks of training and support from a district manager. On-going support includes bi-weekly visits to franchise locations while the store establishes its foot­ing. Once settled in, a quarterly audit four times a year ensures the franchise is meeting cleanliness, product display, and pricing standards.

“You don’t have to have prior experience with can­nabis. We’ve had a few franchisees who came in, aren’t smokers, and didn’t even know which end of a water pipe to smoke out of. We’re looking for entrepreneurs,” Demers says of prospective Prohibition franchisees. “We offer a very complete turnkey package. We take care of everything from A to Z from the site selection to the lease negotiation. We also have a product development team, which is very unique. They test all of our products before releasing them into the system to ensure qual­ity and customer satisfaction. We’re really ahead of the curve when it comes to taking care of franchisees and helping them be successful.”

When asked about the benefits of a franchise in the smoking accessories space, Demers points to the food service industry, where franchisees are constantly wres­tling with the evolving tastes of customers, increasing rates from suppliers, and high employee turnover. Profit­able from the get-go, according to Demers, Prohibition franchises boast incredible ease of operation.

“We are different from other franchise systems, in terms of ease of operation. When compared to other systems – food especially – you have to be hands-on in the store, 50 hours a week. This is not the case with us,” he says. “Most of our franchisees do not operate their stores. They have managers who operate the stores. They use this as an investment that is earning revenue for them. You can easily own multiple locations. I myself own two locations while working 50 hours a week at head office. That is proof it can be done. I’m not so sure I would be able to do so with another system.”

Smoker’s Corner

Between 1896 and 1899, roughly 100,000 prospectors from across North America descended upon the Yukon Territory to reap the benefits of the infamous Klond­ike Gold Rush. Today, a “Green Rush” sweeps through Alberta, as the province opted to put the sale of recre­ational cannabis in the hands of Alberta Gaming Liquor and Cannabis Commission (AGLC) licensed private sec­tor retailers. Prior to legalization, the AGLC received a whopping 795 applications for cannabis retailer licenses as entrepreneurs look to get in on the ground floor.

One Alberta-based franchise, however, has had a foothold in Canada’s cannabis market since starting in Calgary in 2009. Smoker’s Corner, a franchise system in the smoking accessories space, has grown to include 10 franchise and nine corporate locations across Alberta, British Columbia, and Nova Scotia.

“We sell all kinds of smoking accessories including vaporizers, water pipes, grinders, dugouts, extractors, bowls, and all sorts of other accessories that are typi­cally available in head shops or smoke shops,” explains Raj Grover, President and CEO of High Tide Inc., the par­ent company of Smoker’s Corner. “We also have some very unique brands that are produced by sister com­panies such as RGR Canada and Famous Brandz. These companies brand, package, and OEM almost 80 per cent of the Smoker’s Corner catalogue. A lot of our products are very unique, and are only available at Smoker’s Cor­ner as a distribution channel.”

As a retailer of cannabis and smoking accessories for nearly a decade, Grover notes how Smoker’s Corner’s offerings within that space won’t change drastically following legalization. He is however, expecting a mas­sive uptick in sales, providing an opportunity to further expand the brand’s portfolio of e-cigarette and e-liquid products. It’s all part of a plan to continue providing quality cannabis accessories, while dominating the sale of smoking and vaping accessories across the board.

When it comes to the cannabis space specifically, High Tide Inc. looks ahead to Canna Cabana, the company’s brand that will sell cannabis and associated accessories at retail outlets across Alberta. Famous Brandz will act as a supplier for the Ontario Cannabis Store.

“Smoker’s Corner is going to continue selling cannabis accessories, and increase its portfolio of vaping accesso­ries; nicotine e-liquids and electronic cigarettes, to help people quit smoking,” says Grover. “Smoker’s Corner is currently being fortified as 60 per cent of a vape shop to ensure that we remain on top when it comes to acces­sories. That’s what made us to date, that’s who we are at Smoker’s Corner. That system will continue to thrive as the demand for nicotine e-liquids and electronic ciga­rettes increases.”

Smoker’s Corner is eyeing expansion across Canada. A franchise’s cost averages between $180,000 to $220,000 and includes a training period of between seven and 14 days, which covers everything from the day-to-day oper­ations of the store to product knowledge. Smoker’s Cor­ner franchisees benefit from what Grover calls a “one-stop shop” franchisor. Because the brand manufacturers their own products, franchisees can get everything they need under one roof and can focus on their business rather than negotiating with suppliers. Grover adds how 80 per cent of Smoker’s Corner products are manufac­tured in-house.

“We pass those discounts over to our franchisees, who enjoy much higher profit margins due to that,” Gro­ver says. “What we’re looking for, now that we’re a more mature brand that’s been in business for over nine years, is to develop the platform across the country and are looking to add new products to attract new franchisees.”

Spiritleaf

As Canada’s prohibition on cannabis came to an end, the franchise industry was left asking a key question: What role will cannabis play in franchising moving forward? Spiritleaf – under the umbrella of holding company Inner Spirit Holdings – looks to answer that question with a nation-wide system of cannabis retail stores.

Spiritleaf’s President and CEO Darren Bondar is no stranger to moving merchandise via retail stores. Bon­dar has grown WATCH IT! – a franchise system of retail stores selling watches, sunglasses, and accessories – to a thriving system of 15 corporate stores and 16 fran­chises. Now, he’s looking to do the same with canna­bis with the development of a modern retail model that offers “legitimacy, reputability, professionalism, and a feeling of confidence.”

“We’re a cannabis dispensary that’ll be selling all vari­eties of cannabis and related accessories,” explains Bon­dar of the Spiritleaf concept. I’ve got 20 years of experi­ence as a franchisor. We took a lot of the best practices and knowledge we gained in franchising and applied that to the cannabis space.”

For entrepreneurs looking to get in on the ground floor of Canada’s cannabis industry, Spiritleaf might be just the ticket. With more than 100 franchise partners already on board to open Spiritleaf locations in B.C., Alberta, and Saskatchewan, the brand is in prime posi­tion to become a household Canadian name.

For now, Spiritleaf’s “playground” is in Western Can­ada, where B.C., Alberta, and Saskatchewan provincial governments have allowed for the sale of cannabis in the private sector via brick-and-mortar stores. In Canada’s most populous province of Ontario, things are little more complicated. Initially, sales of cannabis in Ontario were to be exclusively left in the hands of The Ontario Cannabis Store (OCS), a crown corporation. But, with the election of a new provincial government in June, Ontario is now going with a model that will allow licensed private sector retailers to sell cannabis out of storefront loca­tions, while the OCS sells online.

“We’ve granted our first 100 locations in Western Canada. Our objective is to do the same in Ontario,” explains Bondar. “This is conditional on the Ontario gov­ernment’s rules and regulations as the province has yet to issue retail licenses for cannabis.”

So, what does a legal cannabis dispensary franchise in Canada look like? Concept images of Spiritleaf franchise locations depict a store dressed in a décor that speaks to the brand’s strong Canadian identity. Featuring earthy greenery and wood finishes, Spiritleaf stores celebrate the beauty of Canada’s natural landscape. They’ve upped the ante when it comes to promoting Canadiana, part­nering with Newstrike and Up Cannabis Inc.; two brands backed by iconic Canadian rock act, The Tragically Hip. Every Spiritleaf location will feature an Up Cannabis Lounge, which will showcase the history of cannabis and the Canadian music scene. What’s more, Spiritleaf’s parent company Inner Spirit Holdings, through their community engagement program The Spirit Fund, has made a five-year commitment to the Gord Downie & Chanie Wenjack Fund, the charitable legacy of The Hip’s late front man. Through that, Spiritleaf will drive awareness of Indigenous history and encourage acts of reconciliation throughout their store network.

According to Bondar, it’s all about establishing Spiritleaf a nation­ally-recognized brand. He hopes that Spiritleaf will be to cannabis, what Tim Hortons is to coffee in Canada.

“You’re going to have a familiar national brand that offers a mid to high-end boutique,” he explains of the Spirtleaf vision. “It’s authentic to that true cannabis user, but also, welcoming to new users. Hope­fully, we’ll be a familiar and convenient place where if somebody needs to purchase cannabis for whatever their purposes are, they’ll have a Spiritleaf destination that’s conveniently located, and would be their go-to place to shop.”

Spiritleaf is seeking franchise partners to set up shop in Alberta, Saskatchewan, Manitoba, and eventually, Ontario. In the first year of legalization, the market is sure to be saturated by an abundance of cannabis retailers. What separates Spiritleaf from the others, accord­ing to Bondar, is that his brand is backed by decades of experience in the franchise industry, and a publicly traded holding company in Inner Spirit Holdings (CNSX).

“We’re the first recreational cannabis company to do an IPO and trade on the stock exchange,” boasts Bonadar. “We wanted to be an open, public company in which Canadians will have the opportunity to invest and become a part of Canada’s recreational cannabis industry. It’s a once-in-a-lifetime opportunity.”

The company will operate multiple corporate locations including the company’s flagship store in Calgary. Franchise partners benefit from head office support that includes training in how to approach customers, cannabis education, point of sale systems, merchandising, back-end accounting, payroll, and human resources.

“Joining a franchise system like Spiritleaf has a lot benefits. It’s an effective way to go,” says Bondar. “There’s a lot of big players in the industry, and while there will be some room in the sector for independent, boutique shops, I think there’s a lot of benefit to being partnered with somebody who’s got the financial strength, and knowledge in the industry.”