For Ontario cannabis stores, the well-worn real estate mantra of "location, location, location" can mean setting up shop in lower-income neighbourhoods, close to where booze is sold, according to some major pot retail operators in the province.
"I have a bit of a saying. It's probably not a very popular saying. But sometimes, poor is more," Steven Fry, president and co-founder of Sessions Cannabis, told an audience at the Lift&Co. Expo last week. "You see in certain demographics, especially in lower socio-demographic areas, cannabis sales are generally higher."
His comments come amid rising competition in Canada's most populous province, where the number of pot shops has exploded throughout the COVID-19 pandemic. Many have opened in retail spaces vacated by businesses unable to weather the economic downturn.
According to real estate brokerage Colliers International, the number of pot shops in the Greater Toronto Area (GTA) grew from 13 in January 2020 to 336 in March 2021, a 2,485 per cent increase. The Ontario Cannabis Store (OCS), the government-owned monopoly wholesaler to retail pot shops, said in August that the province has surpassed 1,000 locations.
Fry, whose company operates 44 locations in Ontario, according to its website, highlights another potentially uncomfortable reality of selling cannabis - an uptick in sales on days when government benefits hit his customers' bank accounts.
"I look at baby bonus day, cheque day, pension day. [They're] the biggest days, by a lot," he said, noting the sales increase can be up to 30 per cent, compared to average daily sales.
For Chris Jones, founder of CANNABIS XPRESS, a chain of small-format pot stores based in Ontario, choosing the right location involves mapping out nearby Liquor Control Board of Ontario (LCBO) and Beer Store locations.
"Usually those types of people that have high alcohol and tobacco consumption are also cannabis users," he told Lift&Co. Expo attendees during a panel discussion.
"We look for things that would be complementary, whether it be restaurants or grocery stores. We love liquor stores and beer stores, specifically in Ontario," he said. "Any store we've had that's in or near an LCBO plaza outperforms other stores."
Nova Cannabis (NOVC) chief operating officer Marcie Kiziak says neighbouring stores don't always spell stronger sales, due to restrictions on who can set foot inside pot shops.
"You can't bring children into a cannabis store like you can into a liquor store. So if you want to pick up your cannabis, you can't if you have children," she told the Lift&Co. audience.
Nova has more than 70 locations across Ontario, Alberta, and Saskatchewan under its Value Buds and Nova Cannabis banners.
Kiziak also notes that her company's core customers were not who she initially expected.
"Originally, we thought there was going to be this kind of . . . call them the white wine crowd. That's the best descriptor I've got," she said.
"That's not who our customer is turning out to be. Our customer is turning out to be the big bag consumer," she added, referring to the large format, lower-margin products aimed at disrupting the illegal market.
George Smitherman, president and CEO of the Canadian Cannabis Council, told Yahoo Finance Canada that he has seen no evidence to back up a correlation between strong cannabis sales and consumers in low-income neighbourhoods, or alcohol.
"I don't like the sound of it, to be honest with you," he said in an interview. "Maybe it speaks to the fact that successful retail needs to be everywhere, because our customers are everywhere."
Pot shop pain expected in 2022
Canadian spending on recreational cannabis amounted to $354.6 million in September, according to Statistics Canada. Ontario accounted for nearly 40 per cent of that monthly figure.
The province initially saw a slow roll-out of brick-and-mortar stores, much to the frustration of licensed producers, who blamed the situation for lacklustre financial results. Now, analysts are sounding the alarm over the high number of stores, predicting some will not survive through 2022.
"We are worried that 2022 could be a year of retail closures in Ontario," BMO Capital Markets analyst Tamy Chen wrote in a note to clients earlier this month.
Distribution of pot shops has been uneven across the province, with major municipalities like Mississauga, Vaughan, and Richmond Hill opting out of allowing stores to open.
"Unless more municipalities opt in for cannabis stores, this could lead to a (year-over-year) decline in industry sales," Chen added.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.