CANADIAN CANNABIS RETAIL PREDICTIONS FOR 2023

By Chris Jones, Founder & President of CANNABIS XPRESS

CANNABIS XPRESS is a chain of cannabis retail stores with 14 locations in Ontario and three locations opening in New Brunswick, making it the largest private retailer in the province. It is in the top 5% of retailers based on store count and in the top 1% of licensed cannabis companies that are profitable in Canada, priding itself on offering its customers a quick, easy, hassle-free cannabis shopping experience. It is built a unique quick-service retail store that gets customers in and out in no time, without sacrificing quality in the products it offers or the education it provides.

The cannabis industry in Canada looks grim for everyone across the value chain, including cultivators, manufacturers, retailers and other service providers. We are in a country with way too much capacity to grow cannabis and supply on hand for the total size of the market. For retail, there is an oversaturation of stores in major cities and even smaller towns. Service providers are aggressively competing to steal market share from one another by undercutting prices and taking a loss just to sign up a new customer. I have been in the industry for more than seven years across all aspects of the value chain and have seen the rise and fall of many companies. This year will be defined by companies that make it through this tough period of increased costs on inputs, lower margins, stiff competition, and the ability to obtain additional capital. Here are my top four retail predictions for 2023 in Canada:

Consolidation

There are still companies around who have enough cash to make purchases or have stock to use if they are publicly-traded companies. There will continue to be more mergers and acquisitions with cannabis cultivators because the total number of licences issued to them in Canada compared with other licence categories (retail, etc.). Access to capital slowed down last year mainly due to inflation. This year I believe interest rate increases will eventually hold at a rate that gives investors more confidence to raise capital and acquire companies. If you are a public or private company that can show profit or a near-term path to profitability, you will become a much more appealing target for an acquisition by a larger company near the end of 2023.

STORE CLOSURES & BANKRUPTCY

Both large and small retailers are struggling with falling prices for recreational cannabis products. This is affecting every business in the industry because of an oversupply of goods, which leads to falling prices and increased competition between peers to get LPs and their brands onto retail store shelves. When certain licence types opened for application over the last few years, it was thought that once you build it, you would automatically start generating a profit. In reality, the licences came but the extreme level of competition wasn’t foreseen. These companies were able to raise large sums of money which led many to overspend with almost zero fiscal oversight. Across Ontario, there are more store closures than openings, and that trend will continue throughout the year, as well as in other provinces such as Alberta and Manitoba. Unless new cities opt in to allow for cannabis stores, there will be a steady decline throughout 2023 in the total number of stores in the country, mainly in the larger markets.

New Areas Opening Up

There are certain provinces that have expanded their licensing system to allow for new applicants to apply and open stores. CANNABIS XPRESS was recently awarded several licences in New Brunswick; prior to that the province only had government-owned cannabis retail stores. Similarly, other provinces have a hybrid framework where they allow for both public and private stores, and will likely expand licensing to allow for new stores to open in smaller cities and towns to compete against the illicit market. In Ontario, there are many cities that have opted out of having cannabis retail stores, and will likely look to vote to have them allowed this year, which will lead to new job creation, opportunities for new retailers to open and a decrease in sales of illegal and unlicensed products.

PRODUCT DEVELOPMENT & CONSUMER PREFERENCES

Cannabis consumers are becoming more sophisticated as they shop in retail stores and get educated by the people working in them. I believe that we are still two to four years away from customers specifically asking for a certain brand over another, but they are now segmenting into new product categories that they have never tried before, such as concentrates and infused pre-rolls. There will continue to be a strong demand for the highest THC products, but customers are learning that the cannabinoid content and terpenes are just as, if not more important than, how much THC is in a product. The flower product category is losing market share to newer products such as vapes, edibles, concentrates and beverages. Product development is driving growth in the industry, for example, live resin is becoming a more popular choice as opposed to distillate.

The Canadian cannabis industry still has a lot of opportunity for growth, even though it will be the most challenging year to date. In order to not only survive, but to thrive, companies need to continue to cut costs and try to find additional ways to earn revenue. Businesses that can show a profit will rise to the top and outshine others who are burning cash every month, which will provide them with the opportunity to buy others or be bought themselves. This year will be the most important one yet for the industry, and will truly show the winners from the losers.

Chris Jones is the Founder and President of CANNABIS XPRESS. For more information conatct Chris Jones at Christopher.lloyd.jones1@gmail.com or visit https://cannabis-xpress.com