Jordan
The mark of a truly livable city, according to some metrics, is the ability for a citizen to access all the necessities of life within a 15 minute traveling distance. And so for a reason that anyone who lives in Toronto will understand, I decided to apply that logic to cannabis retail stores. So within a 15 minute walk, we have Mota Toke, Canyon Cannabis, Wonderland Cannabis, K’s Pot Shop, The Neighbourhood Joint, and, of course, Tokyo Smoke. That’s just a 15 minute walk. I didn’t check this with a 15 minutes drive because I don’t have the time to list all those stores, and you don’t need to hear me do it. Suffice to say Toronto, at least the popular downtown areas of the city, is drowning in retail pot shops. How did this happen and why? I’m not a great businessman, but even I understand that it’s not an optimal strategy to open a store selling exactly the same thing as two other stores on the same block. Yet exactly that, is happening all across the city. And there are hundreds of approved applicants that have yet to open their storefronts. So this is still a phenomenon that’s ramping up, not slowing down. Is there really this much money in selling legal pot? Are there no regulations governing how many stores can flock to one area or where new businesses can open? This feels like a bubble that must be about to burst, but is it? Is the end game for these owners to make a consistent living selling pot? Or is there something else at play here?
I’m Jordan Heath-Rawlings, this is the Big Story. Jennifer Pagliaro is the City Hall reporter at the Toronto Star. She’s now perhaps the resident marijuana reporter. Jennifer, you got a new beat.
Jennifer
Only for a little while.
Jordan
Okay, but let’s start with this: I’m not crazy, right? There are an absurd amount of pot stores in Toronto right now.
Jennifer
Absolutely. You’re not crazy. I think a lot of people are looking around and saying like, oh, man, another pot shop? And that’s the thing that really got me onto the story and wanting to tell it from the perspective that I did.
Jordan
Do we know exactly how many or like how concentrated they are? Because to your point, it seems like it kind of snuck up on me. There was one in my neighbourhood, and then another one was coming, and now I walk down Queen Street East, and there are six within three blocks.
Jennifer
Yeah, it totally snuck up on me, too. And I’m coming at this the same as a lot of people as just a Toronto resident, neighbourhood observer. I lived up until recently on Queen West. And after doing some research, I now understand that there are just over 1000 legal pot shops in the entire province, and almost a third of those are already open or authorized to be open in Toronto. So there’s just over 300. But the more interesting number that I learned, and you can find this all on the AGCO’s website…
Jordan
AGCO, what is that?
Jennifer
The AGCO is a provincial body. It’s the Alcohol and Gaming Commission of Ontario, and they’re responsible for regulating alcohol, gaming, even horse racing, and now they’re also responsible for retail pot shop licenses. And what I saw on the site when we went through the data is that there are actually an additional 300 shops that are in the application process to come online. Now, maybe not all of those will eventually open. Maybe some will bail. Maybe some won’t actually get their license because they don’t meet the recommendations or the requirements. But basically the number that we currently see, which you and I agree kind of feels like a lot, might double in the city of Toronto in the next couple of years. And that’s something that I really wanted to explore because it does seem like a lot.
Jordan
And you guys at the Star plotted all of these shops around Toronto on a map. And what interested me was the placement of them and the concentration in certain neighbourhoods. Because obviously, I can’t speak to whether or not the city can support 300 pot shops spread all over, but they’re not spread all over.
Jennifer
Yeah, that’s the thing, when we were able to look at it on a map, and our great team, Andy and Cameron, did that for us. When you see it, there are a lot of holes across the city, right? Especially in more of the outer suburbs, where you don’t have a lot of main retail streets. In that part of the city, it’s mostly retail plazas, and you don’t see as many pot shops there, although I think that’s changing. Where you see them, is really concentrated on these main retail streets in the downtown core.
And what we’re learning is that basically these stores can locate anywhere that other retail can locate. There are no restrictions in the city of Toronto, save for one important rule, which is that they have to be 150 meters away from any kind of school. But when you actually look at that on a map, which I did, it’s pretty easy to still locate on a main street and be away from a school. Schools are not typically right on Queen Street, for example, they’re usually up a side street, like the ones in my old neighbourhood.
And so because there are no other distance rules, and there are no rules about how many can locate on one block. And there are no rules about the total number of stores that can locate in any one municipality. You’re seeing stores congregate to places that you would typically think would be a good spot to open a pot shop. The problem is a lot of people had the same idea and rushed to open their store. And now you’re seeing this over saturation in some parts of the city.
Jordan
Before we get into the business implications of that over saturation, why are there no regulations? How odd is it that that would happen? I’m not a bylaw-geek, but there are regulations on a lot of things in municipalities about where you can put them.
Jennifer
In talking to industry experts and kind of tracking what happened when it came to retail in the city, it kind of seems like this pendulum swinging. Cannabis was illegal. You couldn’t smoke it, you couldn’t possess it, and you certainly couldn’t sell it legally in a store to anyone. You and I will both remember Queen Street used to be full of shops that sold like cannabis paraphernalia, but didn’t actually legally sell the stuff to smoke with it.
And what happened is that after the federal government legalized cannabis, it allowed the provinces to institute this legal retail sector. So Ontario signed in on that, and Toronto opted in to sell the cannabis. But what happened at first is Ontario had this really weird lottery system. Maybe some of your listeners remember that, where they were handing out these licenses at random. And it seemed really bizarre. And there was no real rhyme or reason to where these were being located.
And so after two rounds of that, the province under a lot of duress because the cannabis industry was like, this doesn’t make sense, they moved on to this open application model. They kind of swung in the other direction. And so now all you have to do is apply to the AGCO for a license. And you do have to go through this bureaucratic rigamarole and paperwork, and you have to have a lease and you have to pay the fee and all these things. But essentially, anyone who meets the qualifications can apply and open a store.
And one of the most baffling things to me as a reporter, and speaking to everyone in the industry as well as the people that are impacted by it, is why the province didn’t start out with caps. And then as time went on, and as they observed saturation, they could have released a new block of licenses. I asked a lot of questions officially of the AGCO and the Ontario Cannabis store, which is like basically the LCBO of weed. And I didn’t get a lot of clear answers back. But to me, that’s the biggest question. Why did they not put more of these rules in place?
Jordan
One of the things we’ve covered on this show previously is just how, and I don’t want to call it a failure, but just how much of a struggle it’s been to move pot smokers from illegal dealers to the legal market. And I think we did an episode a few months back that reported it was barely 50% of the weed bought in Canada is legal. So I guess my question is, where’s the business model here? Where’s the demand to justify all of this supply?
Jennifer
So one thing I found really interesting is that the OCS, the cannabis store, actually reports regularly on how much of the illegal market they estimate they’re capturing. And it seems pretty clear that starting from zero where there was only illegal cannabis, that legalization and the opening of retail stores has allowed there to be this shift, because, remember, we went from zero to 50. So I think that’s important to recognize.
Now, getting beyond 50 is another question. And the industry folks will tell you that there needs to be changes to push retail and available legal cannabis into other parts of the province, because remember, we live in a very big province, and the OCS acknowledges that there is this concentration happening in the city of Toronto, but it doesn’t seem like they are making a lot of effort to relocate some of this retail sector.
And one thing that they did do recently, which the industry folks say was a huge boon, is that they’ve now made delivery options for retail stores permanent. That was something they introduced during the pandemic. But they now say that stores can carry on with delivery options. And when you think about it, it’s kind of crazy that they didn’t have delivery options set up in the first place because just think about how people traditionally get their illegal weed. Most people have a dealer who might meet them or come to them, deliver their weed to them.
So how do you compete with that illegal market? You’re telling someone you can get your weed legally, it might actually be a little more expensive and you have to drive to the store to get it. So delivery was a huge step. And as for now, the OCS is really pushing the retail sector. And without some of those distance rules and some of the other issues, it’s not clear how they will get the stores located where they need to be, where there currently isn’t access.
Jordan
Let me ask you about the business decisions going on here, because this is what fascinates me, is I understand that the province may not want to regulate how many you can have or where you can put them. I even understand that more stores might lead more people to legal pot. And that’s great if it takes away from the black market, I guess. My question is the actual pot store owners themselves. I’m not a super smart businessman, but why would you open a store selling the same thing as three other stores within a block? Like that doesn’t seem like a wise decision, but it happens again and again.
Jennifer
Yeah. Something that interested me is that there are a lot of different types of store owners. There are the people that I would kind of classify as like the true individual entrepreneur who tried to get in early and saw this as like a real opportunity for them. And they invested a lot of their own capital to get into the business.
One of the people I talked to was Ashley Newman. She runs a store called Queen of Bud, and there’s one store in Calgary and one store in Toronto. And she was kind of one of the early adopters pushing legal cannabis in Calgary, where she lives. And she eventually opened up a store in Toronto when the sector became available in Ontario, thinking, this is a good investment opportunity. But there was a lot of backlog in the licensing system. She had a mix up with her paperwork, and she actually didn’t really get open until 2020 in the middle of a pandemic. So she kind of got screwed in that regard.
And there are other folks I talked to, the folks who run High Variety on Queen Street West. This isn’t in my article, but I found it really interesting because there are folks who got into the cannabis industry more on the growing and production side. And they’ve opened stores kind of like a flagship storefront. But it’s actually not the way they make their money. Like the guys at High Variety opened their store kind of as a place to hang out with their friends. They know that they’re actually not going to turn a profit. They know that at the most, it will probably just break even. But they did it anyways.
And then you have these chain stores that do have the capital to open multiple stores across the city. Tokyo Smoke is one I looked at, they have 19 locations right now. They’re about to be opening in most of the malls across Toronto. And what’s interesting is these chain stores have so much capital that they are able to offer really deep discounts to consumers. And that’s what’s hurting the individual entrepreneur type owners.
If you look into the cannabis retail world, those are the players. And like a lot of retail sectors, it’s a system that’s really set up for chain stores and big brands to succeed and for everyone else to probably fail.
Jordan
Well, that’s my next question, which is what is the ideal endgame here? I mean, does the city want to do something about it? Would they like to regulate, but they can’t? Or do they just want to wait and to the business model you just described, sit and let the free market sort it out?
Jennifer
Yeah. From folks I talked to at the city. People are sort of of two minds. I talked to some folks in the city planning Department who are sort of hesitant to get involved in micro managing retail space. They don’t really do that with other retail. It’s not as though the city says there can only be three shoe stores on this block and no more shoe stores. And like, if you go to parts of Queen West, there are more than three shoe stores. It’s kind of like a destination for shopping. And they don’t really see themselves as being the ones to decide the fate of these cannabis stores. I think that they’d be fine with allowing the market to decide.
And there are other folks at the city who say no, this is exactly what City Hall’s role is. They point to the time when the city intervened in Parkdale, where there were too many bars and restaurants, and it was pushing out all other local retail because it became like a hot spot for young millennials to go and dine. And actually the city put in a by law that said that there could only be a certain number of that type of business on any one block.
The problem, though, is that even if the city wanted to do the same thing with cannabis, they can’t. There is actually a provincial rule in the cannabis retail legislation that says that no municipality can pass a bylaw that would treat cannabis retail different than any other retail.
Jordan
That’s kind of nuts to me, especially considering the fact that we still cannot have private businesses that sell liquor, for instance. And I assume, could be wrong, there’s more demand for booze in this province than pot, but there’s no open market for that.
Jennifer
Yeah. One of the things that I spent a lot of time thinking about as I was writing this piece, is we are still really early in the legal cannabis world. When you think about kind of the journey we’ve been on as a society with alcohol, from Prohibition until now, it’s been quite a long time, and arguably we haven’t come very far compared to other jurisdictions. I know we often look jealously at Montreal and other places because we only recently allowed restaurants, for example, to sell non LCBO products. And even then, when you talk to restaurateurs, they have to sell them at quite a huge markup because of the LCBO importing rules.
And so there’s still a lot of work to be done in this province, I think I’m learning as an outsider, when it comes to controlled substances. But the encouraging thing is that there is still time, we’re only three years into cannabis legalization. I think unfortunately, what I found in my reporting is that for some of these individual entrepreneurs, that type of store owner, I think it might be too late for those that have already opened a store.
Jordan
The last thing I want to ask you about those individual entrepreneurs is, I wouldn’t exactly call it a rumour, but it’s something that’s come up a few times when I’ve discussed this with people just about like, hey, can you believe there’s another pot shop opening now that’s five and et cetera, et cetera. A lot of these applicants who are opening up new storefronts now, are doing it in the hopes of getting bought out by the Tokyo Smokes of the world. And it’s just kind of an easy way to throw up a business, you don’t have to have a ton of stuff in there, and eventually they’ll come for you.
Jennifer
No, I haven’t heard that. But actually, given the research that I did, I think that makes a ton of sense. I think there’s probably some truth to that. Even when you look at the OCS Quarterly reports, they even say in their most recent report, unfortunately, not all stores will be able to survive and actually suggest that these stores might be brought into larger brands. It’s almost encouraging owners to do that and to sell their business out to these Tokyo Smoke, Fire and Flower type companies that have the resources to just gobble up smaller businesses.
And so, yeah, if you have the time and the resources to get the license, go through that process, pay the initial rent on a storefront. But keep in mind some of these stores are losing money every day that they’re open just because of the cost of opening a store in the city of Toronto, even though we’re in the middle of a pandemic, retail leases are not cheap in the city, especially in a desirable location like Queen East or Queen West. And so it’s hard to say whether the brands, what they could offer for that store, they would be able to recoup their losses and make a profit. I think that would be a gamble at this point.
Jordan
Final question, and it’s pretty simple: this isn’t sustainable, right? Like in the long term, 5-10 years from now, we’re not going to be able to walk down Queen East or Queen West and see five stores all within a few blocks of each other because they won’t be able to survive, right? If you take the long view?
Jennifer
I don’t think so. I think most people I talk to, including the people who own some of these stores, are fairly certain that a large number of them over time are going to close or they’ll be amalgamated into other store spaces. I looked at a block where there’s a Tokyo Smoke located right next to another store. Perhaps Tokyo Smoke just expands into the second space. I don’t think overall that having that many pot shops all in one place is what people want or need.
Something I talked to city planners about is the vitality of a neighbourhood, and that sounds very hokey. But when you think about it, it just makes sense. You want to have a mix of things where you live. Personally, I would like to have bars and restaurants. I would like to have a mix of retail, maybe a dry cleaner, a gym. You want all of these things within reach so that you have kind of your local shops that you visit and that suit all of your needs. And entertainment fits into that. I put cannabis in the kind of entertainment category when it comes to retail. And I don’t think that what we want is a congregation of cannabis shops, regardless of how you feel about legalization.
And so I think realistically, if people want to protect their neighbourhoods, they need to advocate for better regulations when it comes to a new sector like cannabis retail. Especially as we talk about building back after the pandemic. We want to provide a space where someone could eventually open a bar and restaurant again.
That doesn’t seem like a very profitable idea right now. Bars and restaurants, for example, have been some of the biggest retail victims of this pandemic. But eventually I think we’d like to see a more robust streetscape across the city. And so I think it’s about making sure that there are appropriate plans in place to allow different types of businesses to prosper.
Jordan
We could just make a bar where you can eat gummies and drink pot beverages.
Jennifer
No, honestly, I talked to a councillor, Josh Matlow, about that. One of the rules is like, you’re not supposed to be allowed to sell other things, but I’m not sure why that’s in place. A lot of the rules are there because I think they’re trying to protect against fears that we will be marketing cannabis to young people. And we’ve decided as a society that we’re fine with displaying bottles in the window of alcohol. And in order to buy them, you have to prove that you’re of age. And I think eventually we’ll get to a place where we relax some of those rules around cannabis. And, yeah, why couldn’t you have a cafe model, or a laundromat in the cannabis store? Like, who’s to say?
Jordan
Jennifer, thank you for this. I can’t wait to see how this all shakes out. If only because I would like storefronts that actually have storefronts on my blocks again.
Jennifer
Yeah, me too. Thanks for having me.
Jordan
Jennifer Pagliaro, City Hall reporter at the Toronto Star.
That was the Big Story. For more from us, head to the thebigstorypodcast.ca. I promise there’s no links to legal weed stores on our website. You can find us on Twitter at @TheBigStoryFPN, and you can email us thebigstorypodcast@rci.rogers.com [click here!]. If you are one of these legal pot shop owners, I would love to hear you answer this question: Why did you get into this business? And how do you feel about it now?
You can find this podcast in any podcast app of your choice. You can also find it on your smart speaker simply by asking it to “play the Big Story Podcast”.
Thanks for listening. I’m Jordan-Heath Rawlings. We’ll talk tomorrow.
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